Paragon Mortgages has reported an increased understanding of the implications of the government’s changes to tax relief on finance costs amongst landlords.

The reduction in buy-to-let mortgage interest tax relief, announced in 2015, is being phased in from this month and 78% of landlords surveyed reported an understanding of the personal implications of the changes, up from 71% in Q4 2016.

The lender’s latest PRS Trends Report for Q1 2017, based on interviews with 203 experienced residential landlords, found this increase in understanding is paired with a smaller percentage of landlords saying they do not understand the implications (7% from 11%) or they require more information (13% from 18%), and is a further indication that landlords are preparing for the impact of the changes.

Landlord optimism was stable in the first quarter, with the overall average rating of prospects for the PRS over the next 12 months now at 6.7. This maintains a modest upward trend since Q1 2016 and Paragon says this suggests confidence is returning amongst landlords following a turbulent 18 months, as they gain greater understanding of the pressures they are likely to face and developing strategies to mitigate at least some of the impact.

John Heron, managing director, Paragon Mortgages, said: “It’s encouraging to see that the PRS has not been negatively impacted to the degree that had been widely predicted, despite some turbulence over the last couple of years. This increase in understanding combined with effective financial planning may be the key drivers behind a steadier picture in terms of overall optimism amongst landlords.

“However, we remain cautious, as landlords will not be fully impacted for some years yet and, whilst we have been able to track a modest recovery in confidence since 2015, the sector is still some way off its peak; the PRS is finely balanced and will remain so for some time.”