The latest changes in the buy to let market for landlords with small property portfolios

05 March 2018

Looking at the latest research into the buy to let market, a lot changed during 2017 for landlords with small portfolios (up to 10 properties). Here, we look at the latest findings relating to the last quarter (Q4) of 2017, which provide interesting insights.

Buying and selling activity

Activity in this sector is high, with a quarter of small landlords buying new properties in Q4, while a fifth sold property. This trend looks likely to continue in 2018 with 24% planning to buy, while only 10% intend to sell. This makes this category considerably more active than for landlords with larger portfolios, as they are twice as likely to buy in the coming year. 

Funding with a buy to let mortgage

Of those planning to buy, 58% plan to fund it with a buy to let mortgage, while a quarter plan to use a ‘permission to let’ arrangement on a standard loan.

Interest only mortgages are still the most popular buy to let mortgages with 59% funding their properties this way.

Most landlords are expecting the rates from their mortgage lender to rise with increases in the Bank of England base rate, and this may impact buying behaviours over the coming year.

Popularity of buy to lets

There are three main reasons small landlords invest in property:

  1. Wanting to increase income
  2. Believing property offers a better return than other investments
  3. Retirement planning.

Property is still an attractive investment option, and while many also have full-time jobs, some are looking for rental income to allow them to reduce their working hours or leave their day job entirely.

Types of tenants

Small landlords tend to avoid renting to high risk groups such as students or those receiving local housing allowance. They tend to rent to “safer” tenants, such as families and young couples. In Q4, 46% rented to families with children, a group which is finding it harder to get onto the property ladder themselves.

Small landlords continue to be less susceptible to having periods where properties are empty than larger landlords. The most common reason for empty periods was the changeover between tenants, followed by the need to carry out maintenance on the property. 69% of small landlords had tenants for the whole of Q4 giving them a stable income.         

The impact of recent tax changes

42% of small landlords have some form of borrowing, so are likely to be affected by tax changes which came into force in April 2017.

As a result of these changes, a quarter have transferred property ownership to a limited company, or a partner who is a lower rate tax payer.

Previously, landlords only had to pay income tax on any rental profits after they’d paid the interest on their mortgage plus any expenses. The new rules change the amount of interest they can get tax relief on, reducing over 4 years.

By transferring ownership of a property to a limited company or lower rate tax payer, small landlords are maximising the amount of interest that can be claimed against tax.

These rules prevent landlords in higher tax brackets from claiming back all the tax on their mortgage repayments. Those who aren’t already in a higher tax bracket could be pushed into one as the tax changes could increase their income.

New legislation making it harder to fund property investment

New legislation from the Prudential Regulatory Authority (PRA) on lending criteria and the application process for landlords came into force in September 2017. It affects those with 4 or more mortgaged buy to let properties and requires lenders to carry out additional affordability checks. This means that lenders will take each landlord’s full property portfolio into account when considering a mortgage application.  

Worryingly, only 43% of small landlords are aware of these changes. Of those who are aware, the response is mixed. 44% believe it makes the process more difficult, while the same proportion believe it isn’t any more difficult. Almost a third think that the legislation makes it more likely that mortgage applications could be rejected.


Ying Tan, Managing Director of The Buy to Let Business, acknowledges the complexity of the buy to let market at present, but says that it still offers plenty of opportunities for investors.

The many regulatory changes that have taken place within the last couple of years certainly make the buy to let market more challenging for landlords, but property still offers good returns as long as investors take the right advice from the outset. It is no longer a simple market to navigate and working with a trusted broker is more important than ever before.


Source: BDRC Continental Small Landlords Panel Q4 2017