A total of 42% of landlords believe now is a good time to invest in property, a drop from 48% in Q1 2010.
And the number of landlords considering leaving the sector has risen by 6% in the past three months to 19%.
But one third of landlords polled by LSL Property Services are likely to expand their portfolio in the next year with 2% aiming to reduce them.
David Brown, managing director of LSL corporate client department, says confidence has fallen but there are many reasons to be positive.
“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 their confidence in property investment.”
A total of 37% of landlords report an increase in tenant demand, with one in ten landlords reporting a substantial growth and just 7% witnessing a decline.
And 63% of landlords expect this increase in demand to continue in the next two years, compared to the one in twenty landlords who anticipate demand will fall away.
Only 20% felt the availability of cheap finance was a positive factor for buy-to-let investment – an increase of 8% compared to the previous quarter.
According to the latest CML statistics, the number of buy-to-let loans increased 13% in the last quarter, compared to Q1. However, the number of loans is still 72% lower than in the same quarter in 2007.
David Brown continues: “Mortgage finance remains a daunting obstacle for those looking 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 remains a thorn in the side of 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.”
The introduction of a higher capital gains tax for higher band tax payers is a driving factor behind the slight fall in landlord confidence.
But 34% of landlords who saw the current market as attractive for investment stated property still offer better capital returns than other investments – a drop of 7% since the last quarter.