More than two out of five landlords (42%) say they may reduce their property portfolios, despite rising rental yields and surging tenant demand.

This is according to research from Aldermore’s Buy to Let Index.

Aldermore said the findings point to a growing disconnect in the market. Demand and returns are rising but regulatory and tax pressures are preventing many landlords from investing further in their portfolios, the research found.

Nearly half of all landlords (47%) say their rental yields have risen over the past year, with average increases of 7.2%, and nearly one in five (18%) reported gains of 10% or more.

However, nearly half (45%) of landlords say current market conditions are preventing them from growing their portfolios.

While there has not been a widespread sell-off of properties, the research suggests investment momentum in the sector has slowed significantly.

For landlords considering leaving the sector, policy and regulatory pressures are the key drivers. Among those thinking about exiting:

• 43% cite increased regulation, including the recently enacted Renters’ Rights Act
• 39% point to tax changes
• 37% say high maintenance costs are pushing them out
• 55% say increases in tax rates on dividends, property and savings could force them to exit
• 30% say they feel unfairly scapegoated for wider housing system challenges

Aldermore director of mortgages Jon Cooper says: “What we’re seeing is a clear disconnect in the private rental sector.

“Demand from tenants remains strong and landlords are seeing improved yields, but increasing regulation, tax changes and rising costs mean many are hesitant to invest further. It’s vital for the overall health of the private rental sector that landlords feel confident enough to continue providing a good standard of accommodation, as well as invest in their portfolios.”