Yielding to Pessimism: Are Landlords Losing the Faith?

Investing in property is still profitable. A recent survey of landlords showed that rental yields (which express the income return on a let property) have been steady for the past few years.

Yet, despite this, landlords are becoming less and less confident in their ability to earn an income from yields, and indeed their businesses as a whole. What has led to this downturn in optimism?

It’s the tax changes, stupid

The point at which landlords began to lose confidence in yields started in the Summer of 2015, around the same time that then-Chancellor George Osborne announced a number of tax changes which would severely impact on the world of buy-to-let, namely, the removal of mortgage interest relief.

confidence rental

                                     NLA Quarterly Landlord Panels 2013-2017

Needless to say, the response to the announcement has been significant. In the past two years, landlord intentions to expand have diminished, while others have considered incorporating as a limited company in order to limit their exposure to the tax changes.

What is so significant about yields?

Rental yields represent income as a percentage of property value. Put simply, if you let out a property with a high rental yield it will bring in more rental income.

If you’re not familiar with how to calculate rental yield we have a separate blog with top tips to help.

As mentioned above, a loss of confidence in yields seems at odds with the reality. Rental yields have been steady for the past few years, with the  national average around six per cent

Lack of confidence not isolated to yields…

Faced with the prospect of higher tax bills, landlords are feeling less than optimistic about their business prospects across a range of common indicators. The following chart shows the positive expectations of landlords of different aspects of their lettings businesses, and how they have been affected since the announcement.  

rental yields

                           NLA Quarterly Landlord Panels 2013-2017

What does a loss in confidence mean for the future of buy-to-let?

The loss of confidence in yields may not correspond with the reality, but it demonstrates a growing sense of pessimism from landlords about their ability to generate income through buy-to-let.

While it is true that the tax changes will place a greater burden on many landlords, the data shows that you should still expect to receive a decent return, provided you invest wisely and have a long-term plan in place.

For a regional breakdown of yields across the UK see www.landlords.org.uk/news-campaigns/news/landlords-losing-confidence-in-rental-profits


2 thoughts on “Yielding to Pessimism: Are Landlords Losing the Faith?

  1. “… and have a long-term plan in place”
    Pray tell, what good is having a long term plan in place, when suddenly you get a completely unexpected (and unexpectable) tax change that turns any assumptions about that plan on it’s head ?
    I’m sure that most of the people now facing “greater than 100% tax rates” had a long term plan – buy property, pay off mortgage over long term (in some cases, foregoing all rental income and supplementing it with other income to pay down the capital), have rental income as pension in future. That’s been my plan.
    As it happens, I don’t earn enough for the tax change to affect me **AT THE MOMENT** (but that should change) – but we’ve mitigated the change in part by putting the properties in joint names with my wife (at a cost for conveyancing fees etc, and also having to do an annual tax return for my wife as well).

  2. https://polldaddy.com/js/rating/rating.jsIt’s not just tax. The Gov ‘tinkers’ without understanding what letting out to virtual strangers, many who have opted into a mind set of ‘Its my home, I’ll do what I want’….means in reality; rent arrears, smokers who lie, Dilapidations, abandonments, and now Vetting fees. This is completely unreasonabe. Vetting fees ARE earned by those agents doing a thorough job. Now curbing the Deposit monies which exposes the LL to more loss via Dilapidations…..
    My sister has sold two or her rentals, after an agent said to her ; ‘Smokers? They lie m’dear!’ and wants to dispose of her third…but huge Capital Gains makes this a very costly loss of her long term investment of time, money, repairs, legislation compliance…. why exactly?
    I’m facing two court cases over the above issues, two and half unpaid hugely stressful years..Courts who favour the (lying ) ‘poor little tenant’ claiming ‘Harassment ‘ ! The hugely now very regulated but vulnerable Land Lord…As Bath Police said to me last year,
    ‘We consider ‘renting out’ now an ‘act of madness’. ! The Police know we can’t win, each and every clause of a so called legally binding contract is so easily one often flouted…
    I’ve raised a raft of sensible reforms with Jacob Rees Mogg who was my local MP…
    Apparently there’s a 50 page Gov Contract, I’ve never met anyone , tenant, agent, or Land Lord who uses this!
    Anyone interested in my open and transparent ‘root and branch’ reforms?
    T J Saxon member of N L A….

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