Article Posted -
16 May 2017

Report headlines

The NLA takes its role as representative and advocate for private landlords very seriously, which is exactly why we try to capture and analyse the opinions and experiences of members as regularly as possible.

We do this in a number of ways, not least by speaking with members at local events and via our advice services, and one of the most useful is our quarterly survey of landlords conducted in partnership with the UK's largest independent market research consultancy BDRC Continental Ltd.

Why survey landlords?

It would be a easy to simply apply our own notion of common-sense to the problems, challenges and opportunities faced by landlords in the UK in order to identify solutions and support landlords, but it would not ensure that what we say and do is truly representative of our members. 

We understand that very few people actually enjoy filling in surveys and as landlords NLA members are sometimes inundated by requests to review and comment. However, it is vitally important that we are able to draw on the amassed experience of our membership to underpin what we do. This is why ask members and associates of the NLA to take part in one online survey every quarter addressing a large number of ongoing issues and contemporary pressures about which the Association needs empirical evidence to inform public policy. 

So what does it say?

An awful lot, much of which we use to inform our negotiations with local and national government. This also informs our ability to evaluate the market place and plan for the support NLA members will need in the short, medium and long term. Although this can, at times, appear a little contradictory.

For instance, in Quarter One 2017:

Landlords optimism is at a record low: 

Q1 Optimism

Over the course of the last decade the NLA has tracked landlord optimism about a whole host of aspects of the PRS and wider investment opportunities. We then aggregate these results to form an indicative optimism metric - currently sitting at +24.

In respect of their own lettings business, this figure is somewhat higher at +41, thanks in large part to strong rental yields.  

However, putting this in context we can see that +41 is the second lowest optimism score recorded over the last 10 years - a full 7 points below the trough represented by the beginning of the Credit Crunch.

Optimism Trend Q1

 

Perhaps against the backdrop of changes to Income Tax reliefs, SDLT, the proliferation of local licensing schemes and constant calls for more regulation is it not surprising that landlords are less than optimistic about their future. 

It could also be that some realities of business are also starting to take their toll. 

Tenant demand is strong, but declining 

tenant demand q1

Tenant demand remains strong as a result of the chronic under-supply of property in much of the UK. At the same time, landlords are increasingly reporting that demand growth has slowed and the proportion of landlords indicating that demand has decreased has almost tripled in the last 12 months. 

Such a trend could lead an observer to assume that with diminishing demand, landlords are experiencing increased voids and decreased income. However, we find that the same cohort of landlords (around 750 individuals in this instance) are reporting stronger profitability than at any point in the last six years. 

Net In Profit chart

This doesn't necessarily mean that landlords are making more profit than they were previously - in fact yields have remained largely constant for the last few years - but it does show that a higher proportion of landlords in the market are able to make a profit. 

Yields remain stable

If demand is down, and yields are stable, how can profitability be on the rise?

Every indication is that the increasing pressure on landlords' finances, as a result of central government tax policy, planning restrictions, local licensing, energy performance requirements, and just general increases in the cost of doing business those landlords on the margins are being forced out. 

We can see by following trend data provided by NLA members that the segment of the landlord community declining most rapidly are those making a minimal profit or breaking-even. Likewise, we know that landlords are divesting themselves of borderline property ahead of the full transition to s24. 

For the first time in a decade of collecting this data the we are witnessing more landlords planning to sell than buy, and although we estimate that in volume terms the number of properties bought will continue to outstrip those sold for the time being, we forecast a reversal in this position by the end of 2017.

Planned purchase behaviour

Based on the information we receive from landlords in these surveys, and analysis of the marketplace, we currently forecast that growth in the 'existing landlord' segment of the PRS will reduce from approximately 0.1 per cent in Q1 2017 to approximately -0.2 in 12 months time, unless there is a significant change in mood and prospects for private landlords. At the same time 'new' purchases are also declining, seemingly as a result of the Treasury's SDLT levy and an uncertain investment climate. 

The report attached below includes all of the figures represented above, as well as further commentary on the prospects for the PRS in 2017. 

It also includes a selection of comments from NLA members on current issues, messages to government and interestingly to BTL lenders, which provide an invaluable insight into what really matters to landlords and this sector.

Thank you to all who took part in this, and previous NLA surveys. I hope that you will continue to take the time to provide feedback and opinion in June 2017 when the Quarter Two survey goes live. Your contribution is absolutely vital to informing what we do and say, 
© National Landlords Association : 2nd Floor, 200 Union Street, London SE1 0LX