Buy-to-let landlords are getting their heads around legislative and tax changes, and finding attractive returns in the long-term rental sector.
The picture is mixed over whether buy-let-landlords are staying or leaving the sector right now. Data is skewed by factors such as tenants taking out more long-term leases, meaning less new stock is available, as well as the trend for landlords dabbling in short-term lets alongside buy-to-let.
But the latest research from Knight Frank, which looks at the mortgage market, has revealed that the number of buy-to-let mortgages issued in the year to February hit 275,600 – the highest figure since 2016. The report used UK Finance data, and also includes 159,100 remortgages.
New mortgages taken out by buy-to-let landlords – either those fresh to the property investment world or those buying additional properties – was up to 110,000, according to the report. This compares to just 75,800 taken out in the 12 months to February 2020.
The bottom line for buy-to-let landlords
Just as house prices have been skyrocketing in recent years, so have rents. In fact, in some cases, monthly rental rises have outpaced house price increases, says Knight Frank. This is one factor that is giving landlords an extra incentive to remain active in the sector.
Nationwide has reported a 14.3% annual rental growth in the UK over the past year. Moving to prime London, rents in some areas have gone up by as much as 25% over the past 12 months.
Commenting on the results, Andrew Groocock, regional head of sales for Knight Frank’s City, East and North region in London, said: “The extent of the recent rent rises has started to compensate for some of the regulatory changes of the last few years. It’s increasingly driving activity in London’s apartment market.”
Rental yield performance have been particularly attractive in recent years, particularly in certain parts of the country. Historically low interest rates and an undersupply of properties is also leaving the space open for more institutional investment, notes Knight Frank.
Build-to-rent: a strong alternative
While traditional buy-to-let consists of properties that can switch between owner-occupied or rented, and can involve any property type, build-to-rent is a more specific, purpose-built option.
This sector is no longer seen as the ‘niche’ it once was, and is the go-to option for growing numbers of tenants; particularly those in cities and urban areas with good transport links and regeneration on the go. Increasingly, traditional buy-to-let landlords are considering this option.
According to Knight Frank, more than £1.4bn worth of transactions were finalised in the last quarter of 2021 in the build-to-rent space. This meant year-end investment volumes for 2021 as a whole were a record $4.3bn. Annually, this was up by 19% on 2020.
So what does the future hold?
Knight Frank predicts that rental values will continue to climb, and could rise by 17.1% over the next five years across the country. Of course, regional variations will always apply, with the north west often tipped to see the biggest house price rises and rental increases for buy-to-let landlords.
In prime central London, rents could increase by 22.7% over the next half-decade. This compares to an average of 19.3% in prime outer London.
The agency also reveals that the number of international corporation relocation enquiries seen by the firm from prospective tenants hit its highest level in March since August 2019.
John Humphries, head of relocation and corporate services, said: “Demand is hard to satisfy at the moment and it will only grow as summer approaches.
“If you own a good property at the moment, the chances are that it will be let before it even comes to the market.”
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