2^nd May 2018

According to a lender's latest survey of the Private Rented Sector trends; buy-to-let investors are paying much closer attention to the gearing of their portfolios. Gearing is the proportion of a company's/person's borrowed funds to its/their equity.

The research was based on interviews carried out with 203 landlords and found that landlords with four or more properties were intending to make changes to their portfolios. In this year's first three months the average gearing had dropped down to 32% from 35% in the last quarter of 2017. In 2012 the average gearing was at its highest of 43% and 2018's slump is the lowest since the lender first started its research in 2001.

Successfully gearing their portfolios is one of the ways that landlords are able to maximise their profits but with the phasing out of the mortgage interest tax relief there is now a greater onus on paying the interest off. Landlords can now only claim back a basic rate tax deduction of just 20%.

The survey also found that 24% of landlords in the last three months increased rents and are having to spend more of their income on mortgages costs. In this year's first quarter landlords had to spend 30% of their rental income on mortgage costs whereas in Q4 of 2017 they were paying 26%.

Managing director of the lender, John Heron, explained: ‘Our latest survey demonstrates how tax and regulatory changes are beginning to drive changes in landlord behaviour, with evidence of polarisation between small landlords and those with more substantial portfolios beginning to emerge. Our own experience highlights that landlords with larger portfolios need access to products that cater for landlords with more complex requirements and broader underwriting expertise, increasing the role for specialist lenders in the buy-to-let market.’

News Archive »