Taxation has emerged as the primary concern for UK landlords, surpassing worries about increased regulation, according to new research from lettings agency Benham and Reeves.
The analysis found that 62.7% of landlords intend to maintain their current portfolio over the next year, while only 3.9% plan to expand their holdings. Meanwhile, 14.2% are planning to exit the rental market entirely.
Investment barriers and market confidence
Landlord taxation ranked as both the biggest barrier to further investment and the number one change that would encourage renewed investment activity. Other desired changes include lower Stamp Duty, cited by 13.7% of respondents, a faster or easier possession process at 12%, greater confidence in the economy at 11.6%, and lower property prices at 9%.
Despite these challenges, 50.6% of landlords believe residential property remains a sound long-term investment, even with increased regulation. However, confidence in the broader private rental sector appears more cautious, with 39.1% of landlords stating they are either somewhat or very unconfident about its long-term future, compared to 33.9% who remain confident.
These findings contrast with recent data showing rental yields reaching 5.9% nationally, suggesting returns remain under pressure despite strong yields in some markets.
Profitability concerns
Profitability expectations reflect landlord pessimism, with 38.9% anticipating their buy-to-let portfolio profitability will decrease during the next 12 months—more than five times the 7.6% who expect it to increase. A further 45.8% expect profitability to remain unchanged.
The taxation burden has become increasingly significant for property investors, with tax changes already impacting property values in some segments of the market.
Investment preferences
For landlords considering expansion, traditional residential single-lets remain the most attractive option, favoured by 48.2%. Properties requiring refurbishment rank second at 18.3%, followed by holiday or short-term lets at 11.0%. HMOs at 5.5%, student accommodation at 4.3%, corporate lets at 3.7%, and new-build properties at 3.7% account for smaller proportions of investment appetite.
Among landlords considering expansion, long-term retirement and investment planning is the primary motivation, cited by 43.7%, followed by strong tenant demand at 17.2%, the belief that property currently represents good value at 16.1%, and expectations of house price growth at 11.5%.
Marc von Grundherr, Director of Benham and Reeves, commented: “The issue isn’t that landlords have lost faith in property. Almost two-thirds intend to maintain their existing portfolios and, amongst those looking to expand, long-term investment planning is by far the most common motivation.”
He added: “The problem is that the environment in which landlords are being asked to operate has become substantially less attractive. Rental demand remains extremely strong and the traditional residential rental property remains the preferred choice for those looking to expand.”
Market implications
The research suggests that while landlord confidence in property as an asset class remains relatively robust, the operating environment is constraining new investment. With limited portfolio expansion planned and 14.2% of landlords considering exits, rental supply constraints may persist, potentially maintaining upward pressure on rents for tenants.
