Landlord optimism is "gently increasing", despite the reforms to Capital Gains Tax (CGT) in the October Budget and the potential impact of the Renter’s Reform Bill, Pegasus Insights has found.

The firm’s Latest Trends report for Q4 revealed that 37% of landlords surveyed said they feel "good" or "very good" about their prospects, compared to 33% in the same period in 2023.

The firm found that since mid-2023, there has been a general upward trend in the proposition of landlords feeling optimistic about the prospects for their overall lettings business.

Pegasus stated that landlords who reported a "large profit" are most likely to feel upbeat (71%), with this figure falling to 33% for those making a small profit. Meanwhile, only 8% of landlords who are either breaking even or loss making are feeling upbeat.

On a quarterly basis, three measures showed a small uptick, with optimism about business prospects increased from 32% in Q3 2024 to 37% in Q4. Positivity about CGT jumped from 14% to 17% in the same period, while rental yields increased slightly from 36% to 38%.

Pegasus said that this gradual improvement in sentiment comes despite growing concerns over the potential impact of the Renter’s Rights Bill.

Of around the three quarters of landlords who think the Bill will be negative for their own lettings business, 43% said "significantly so". This increased to 65% for those who believe the Bill will have a significant negative impact on the private rented sector more broadly.

Director at Pegasus Insights, Bethan Cooke, said: "Improving landlord confidence is testament to the resilience of the buy-to-let sector and the strength of the fundamental economics underpinning this market, fundamentals which the Renters’ Rights Bill will only serve to reinforce.

"If this new Bill forces more landlords to exit the market, it will further deepen the supply/demand imbalance which pushed average rents to unprecedented levels last year."

Of the 73% of landlords saying they increased rents in 2024, more than 80% claim they are currently renting at least one property at below market rates, while 62% of landlords say they plan to increase rents further this year.

Landlords letting at below market rates believe they are subsiding an average of 4.7 properties, typically at £144 per month each.

The larger landlords are more likely to report letting at least some of their portfolio at below market rates, with the belief that they are subsiding 12.8 properties each at £120 per month.

Even with these subsidies, the average achieved rental yield remains close to the Q3 2024 10-year high, at 6.4% in Q4.

Cooke concluded: "What’s more, as the legislative threat builds, so does the pressure for landlords to pre-emptively increase rents to future-proof their businesses.

"Those landlords charging below-market rates may currently be compromising on revenue in order to retain good tenants, but may not feel they have the option of continuing to do so in a more restrictive environment.

"The long-term profitability trend for the buy-to-let market is stable, and prospects for the sector remain very good. So, while the Renter’s Rights Bill may make life more difficult for landlords, the unintended consequences are likely to be much harder on tenants themselves."

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