Landlords back buy-to-let despite tax and regulatory challenges

Landlords back buy-to-let despite tax and regulatory challenges

A recent survey reveals that over half of landlords still view residential property as a solid long-term investment despite increased taxation and regulation. However, many remain cautious about expanding their portfolios amid profitability concerns.

More than 50% of landlords in England continue to believe that buy-to-let remains a good long-term investment, according to a survey commissioned by lettings agency Benham and Reeves. The research, conducted to gauge landlord confidence and investment intentions, also highlighted the significant barriers landlords face, including taxation and regulatory pressures.

The survey found that while a majority of landlords intend to maintain their current portfolios, only a small fraction plan to expand, with many considering reducing their holdings or exiting the sector entirely. Profitability concerns and the financial burden of taxation were cited as key factors influencing these decisions.

Survey details landlord confidence and investment intentions

The survey of landlords in England examined their outlook on the private rental sector’s future, investment plans over the next year, profitability expectations, and factors deterring further investment. It found that 50.6% still regard residential property as a sound long-term investment despite the challenging environment.

Confidence in the broader future of the private rental market was more mixed. Approximately 39.1% of landlords expressed some or significant lack of confidence in the sector’s long-term prospects, compared to 33.9% who remained confident. Profitability expectations were also subdued, with 38.9% anticipating a decrease in their buy-to-let portfolio’s profitability over the next 12 months, while only 7.6% expected an increase.

Regarding portfolio size, 62.7% of landlords plan to keep their holdings steady over the coming year. Only 3.9% intend to grow their portfolios, while 13.0% expect to reduce their number of properties and 14.2% plan to leave the rental market altogether. This means more than a quarter of landlords are considering scaling back or exiting, a figure roughly seven times higher than those aiming to expand.

Taxation and regulation weigh heavily on landlord decisions

The survey highlighted taxation as the most significant barrier to further investment, with 28.3% of landlords citing it as their primary concern. This was well ahead of the Renters’ Rights Act and wider regulatory issues, which were identified by 15.1%, and property prices, mentioned by 12.6%. Other notable barriers included economic uncertainty (9.8%), concerns about problem tenants or rent arrears (8.6%), Stamp Duty (6.8%), and mortgage rates or finance costs (6.2%).

When asked what would encourage them to invest more, landlords overwhelmingly pointed to more favourable taxation policies, with 36.9% selecting this option. Lower Stamp Duty (13.7%), a faster or easier possession process (12%), greater economic confidence (11.6%), and lower property prices (9%) were also cited as potential incentives.

In terms of investment preferences, traditional single-let residential properties remain the most popular choice, favoured by 48.2% of landlords considering expansion. Properties requiring refurbishment were the second most attractive option at 18.3%, followed by holiday or short-term lets at 11.0%. Other types such as HMOs, student accommodation, corporate lets, and new-build properties attracted significantly less interest.

Context of buy-to-let investment amid regulatory changes

The private rented sector in England has faced a wave of regulatory reforms in recent years, including the introduction of the Renters’ Rights Act, increased safety and energy efficiency standards, and tighter licensing requirements. These changes have increased compliance costs and administrative burdens for landlords and letting agents alike.

Alongside regulation, tax changes such as the phasing out of mortgage interest tax relief and higher rates of Stamp Duty for second homes have further squeezed landlord returns. This combination has made buy-to-let less attractive compared to five years ago, a view shared by 78.5% of landlords in the survey, with over half stating it is much less attractive.

Despite these challenges, rental demand remains strong, driven by factors such as housing affordability issues and demographic trends. This ongoing demand supports the view of many landlords that buy-to-let can still be a viable long-term investment, provided the regulatory and tax environment becomes more supportive.

Practical implications for landlords and letting agents

For landlords managing small to medium portfolios, the survey results underline the importance of careful financial planning and portfolio review in the current environment. Maintaining compliance with evolving regulations, particularly those related to tenant rights and property standards, is critical to avoid penalties and reputational damage.

Given the prominence of taxation as a barrier, landlords should consider consulting with tax professionals to optimise their tax position and explore options such as limited company ownership, which may offer different tax advantages. Letting agents can play a key role in advising clients on these issues and helping them understand the impact of new regulations like the Renters’ Rights Act.

Landlords looking to expand should weigh the risks and costs carefully, particularly in light of subdued profitability expectations. Properties requiring refurbishment may offer value opportunities but also entail additional management and compliance responsibilities. Staying informed about local licensing schemes and possession procedures is also essential.

Uncertainties and future developments to monitor

While the survey provides a snapshot of current landlord sentiment, the private rental sector is subject to ongoing policy developments. The government’s approach to landlord taxation and regulation may evolve, potentially altering the investment landscape. The practical effects of the Renters’ Rights Act and other recent legislation will become clearer as case law and enforcement practices develop.

Economic conditions, including interest rates and inflation, remain uncertain and will influence landlord profitability and tenant affordability. The balance between encouraging investment and protecting tenant rights continues to be a policy challenge, with potential for further reforms that could impact landlords’ operational and financial decisions.

Considerations for landlords preparing for change

• Review portfolio performance and profitability forecasts in light of current and anticipated tax and regulatory costs.
• Ensure full compliance with safety, licensing, and tenant protection requirements to mitigate risk of enforcement action.
• Consult tax advisers to understand the implications of ownership structures and available reliefs.
• Stay updated on government announcements relating to landlord taxation and the Renters’ Rights Act.
• Consider the suitability of different property types for investment, balancing potential returns against management complexity.
• Maintain clear records of communications, repairs, and compliance activities to support possession proceedings if necessary.

Keeping your rental properties compliant with evolving requirements

Membership of The Landlord Association (TLA) offers landlords and letting agents access to practical compliance resources and guidance tailored to the changing regulatory environment. TLA’s developing property management platform, ORBIT, currently available in BETA testing, is designed to help organise property records, manage rental documentation, and keep track of key compliance actions such as safety checks and tenant communications.

ORBIT’s tools can assist landlords in preparing for new obligations under legislation like the Renters’ Rights Act by providing a centralised system to record repairs, inspections, and possession procedures. TLA membership also offers timely updates on regulatory developments and access to expert support, helping landlords maintain compliance and manage their portfolios effectively amid ongoing changes.

Explore TLA membership and learn more about ORBIT BETA access to support your property management and compliance needs.

Looking ahead, landlords should remain vigilant as the regulatory and tax environment continues to evolve. Staying informed and proactive will be essential to protect investment returns and meet tenant expectations in a sector undergoing significant transformation.

Sources: Letting Agent Today