Despite the challenges posed by increased Capital Gains Tax (CGT) and the impending Renters' Rights Bill, landlord confidence in the private rented sector (PRS) is on the rise, according to the latest research.

While the increase in optimism is modest, new findings from Pegasus Insight show that 37% of landlords feel positive about their future prospects, a slight rise from 33% in Q4 2023.

Stronger Optimism Amongst Profitable Landlords

The latest Landlord Trends report reveals that confidence is highest amongst those who report strong profitability. Amongst landlords who have achieved significant profits, 71% express a positive outlook. In contrast, only 33% of those making a small profit share the same sentiment, and optimism drops further to just 8% amongst those breaking even or operating at a loss.

The survey also notes slight improvements in optimism concerning PRS prospects, rental yields, and the impact of CGT.

Concerns Over the Renters' Rights Bill

However, the report highlights widespread concern about the upcoming Renters' Rights Bill (RRB). An overwhelming 76% of landlords believe the Bill will negatively affect their business, with 43% anticipating significant repercussions. Additionally, 65% predict the Bill will have a considerable negative impact on the broader PRS.

According to Pegasus Insight, improving confidence amongst landlords reflects the resilience of the buy-to-let sector and the strong economic fundamentals underpinning the market. However, the Renters' Rights Bill may intensify existing challenges. If the new legislation forces more landlords out of the market, it will worsen the existing supply-and-demand imbalance, which has already pushed average rents to record highs. As legislative pressures mount, landlords may feel compelled to increase rents pre-emptively to future-proof their businesses against impending regulatory constraints.

Landlords Respond with Higher Rents

The research indicates that rental yields remain near a 10-year high, averaging 6.4%. Despite this, 82% of landlords report having at least one property rented below market value.

In response to financial pressures and legislative uncertainties, a significant number of landlords have increased rents. In 2024, 73% of landlords raised their rental prices, and 62% are planning further increases in the coming year.

Many landlords charging below-market rates are prioritising tenant retention, but with increasing financial pressures, this approach may not be sustainable. On average, landlords who rent below market value subsidise 4.7 properties at a loss of approximately £144 per property each month. Larger portfolio landlords report an even greater burden, subsidising an average of 12.8 properties, equating to a monthly shortfall of £1,536. In a more restrictive legislative environment, landlords may find it increasingly difficult to maintain below-market rates, which could lead to rent increases across the sector.

Although the long-term profitability of the buy-to-let sector remains stable and market fundamentals are strong, the Renters' Rights Bill is expected to present new challenges. While intended to improve conditions for tenants, its unintended consequences may ultimately result in a more challenging rental market, making it harder for renters to secure affordable accommodation.

A Cautiously Optimistic Future for Landlords

Despite the hurdles posed by rising Capital Gains Tax and the Renters' Rights Bill, landlord confidence is gradually improving. Many landlords remain positive about their business prospects, demonstrating the resilience of the sector in the face of regulatory change.

As the sector continues to navigate these challenges, landlords will need to balance compliance with profitability, ensuring they remain competitive while adapting to new legislative requirements. The coming months will be crucial in determining how the Renters' Rights Bill shapes the future of the private rented sector.