Nine in ten (89%) UK-based residential limited company landlords are confident in the long-term outlook for the rental market, with 84% expecting rental yields to rise in the next 12 months, according to new research from Kensington Mortgages, part of Barclays.

Four out of five (80%) landlords expect rental demand to rise, while more than three-quarters (77%) believe that property values will increase over the same period.

But landlords are also facing increased challenges with 77% expecting mortgage costs to increase, 81% reporting higher running costs – such as repairs, insurance, utilities and maintenance – and 79% predicting the regulatory environment to become more challenging.

Interest rates biggest impact on confidence

Interest rates were cited as the single biggest factor influencing landlord confidence (31%), followed by regulation (26%), property prices (25%) and rental demand (25%). The economic outlook (22%), mortgage availability (22%) and taxation (20%) were also highlighted as key considerations.

Kensington Mortgages’ BTL Barometer found that just over half (53%) of landlords intend to maintain the size of their portfolio over the next year and only 8% are considering reducing their portfolio.

Instead, it found more than a third (38%) plan to expand while a vast majority (95%) are looking to diversify, particularly into corporate lets (37%), followed by HMOs with six bedrooms or more (18%), family homes (17%), and single-tenant properties (13%). It said that fewer than 1% plan to exit the BTL market entirely in the next twelve months.

Nearly three-quarters of landlords (74%) said they currently find it easy to access BTL mortgage financing.

A preference for the limited company structure

Kensington’s research found that more than half of limited company landlords (53%) hold their entire portfolio within the limited company structure. Landlords who also had personal holdings reported gross rental yields of 5.04% from their limited company portfolios on average, compared to 4.88% from personally held properties.

The study showed that residential properties for families (40%) were the most common asset type in property portfolios. This was followed by HMOs with six bedrooms or more (35%) and single-tenant residential properties (33%). Less popular options included HMOs with fewer than six bedrooms (27%), holiday lets (16%) and student lets (12%). In recent years, landlords report primarily increasing their holdings of family homes (21%), single-tenant homes (20%), and HMOs with six or more bedrooms (16%).

Allison Buckley, chief executive officer of Kensington Mortgages, said: “The latest findings from our BTL Barometer underline the resilience and professionalism of today’s limited company landlords. Despite experiencing higher operating expenses and anticipating increased mortgage costs and greater regulatory complexity ahead, landlords remain firmly committed to the sector – underpinned by strong tenant demand and expectations of improving yields.”