Still a good time to invest in buy-to-let say landlords

Although confidence in buy-to-let has fallen in the past three months, some 42 per cent of landlords still believe this is a good time to invest, figures have shown.

This is despite a recent increase in capital gains tax (CGT) which could cost them an extra £11,400.

These are among the findings of the latest landlord sentiment survey by LSL Property Services - owner of a UK lettings agent network which includes national chains Your Move and Reeds Rains.

One third (32 per cent) of landlords polled by LSL Property Services intend to expand their portfolios in the coming year.

The number of landlords considering leaving the sector is also rising: Up from 6 per cent in the past three months to 19 per cent. This figure includes investors leaving the market through retirement or lifestyle reasons.

The survey evidence is backed by LSL's latest Buy-to-Let Index, which reported the drop in total annual returns from 13.2 per cent in April to 10.1 per cent in July.

Due to the recent levelling off of house prices, an investor buying property now could expect a total annual return of 3.5 per cent, the equivalent of £5,838, if conditions remain the same for the next year.

David Newnes, Estate Agency Managing Director of LSL, says: "Rising rents and house prices offered landlords bumper annual returns at the start of the year, and this was reflected in the surge in confidence.

"This has fallen slightly following the slowdown in house prices and the capital gains tax hike.

"But the vast majority of landlords remain committed to buy-to-let. Attractive rents - just £12 per month shy of their peak - and increasing yields underpin confidence in property investment."

Also, growing tenant demand appears to be balancing falling capital gains.

Some 37 per cent of landlords have seen an increase in tenant demand, with one in 10 landlords reporting substantial growth. Nearly two thirds of landlords (63 per cent) expect this increase in demand to continue through to 2012.

Although landlords recognised the slight improvement in buy-to-let lending in the past quarter, just one fifth of respondents (21 per cent) mentioned the availability of cheap finance as a positive factor for buy-to-let investment - an increase of 8 per cent compared to the previous quarter.

According to the latest CML statistics, the number of buy-to-let loans rose 13 per cent in the last quarter, compared to the first quarter.

However, the number of loans is still 72 per cent lower than in the same quarter in 2007. Newnes adds: "Mortgage finance remains a daunting obstacle for many keen to get a foot on the property ladder.

"This is keeping thousands of frustrated buyers in rented accommodation, pushing up tenant demand and rents.

But borrowing can be a problem for many potential investors too.

"Despite a slight easing in lending in the last quarter, mortgage finance constraints are hitting landlords. Funding conditions remain tight for lenders, and lending to landlords won't loosen significantly in the next two years."

LSL also believes that rising capital gains tax (CGT) has dented the confident of some landlords.

The average property investor owns three properties and has seen capital gains of £152,219 since they bought their properties. If they sold their properties today, they would face a capital gains tax bill of £39,793 - an increase of £11,369 from the previous tax regime.

Landlords with only one property have made average capital gains of £75,111. If they sold now, the average single-property landlord would face a tax bill of £18,203 - up £5,201 since the emergency budget.