Knight Frank’s latest analysis of the UK residential lettings market shows how rent rises are tempting landlords back into the market.
The number of buy-to-let mortgages issued in the 12 months to February this year was the highest figure since 2016, UK Finance data shows.
The total was 275,600, which included 159,100 re-mortgages as landlords committed to a sector that many have left due to increased taxes and red tape in recent years. Meanwhile, 110,000 new buy-to-let mortgages were issued in the year to February as landlords took advantage of the stamp duty holiday. This compared to a figure of 75,800 in the 12 months to February 2020.
Ahead of the introduction of a 3% stamp duty surcharge for landlords in April 2016, there was a spike in activity in the buy-to-let sector. Since then, demand has been in decline due to higher costs and fewer tax breaks as the government introduced measures that have attempted to tackle the issue of housing affordability.
“The extent of the recent rent rises has started to compensate for some of the regulatory changes of the last few years,” said Andrew Groocock, regional head of sales for Knight Frank’s City, East and North region in London. “It’s increasingly driving activity in London’s apartment market.”
Meanwhile, property yields have looked attractive in recent years with interest rates at rock bottom and the strong fundamentals of a growing and undersupplied rental market in the UK are attracting a growing amount of institutional capital.
More than £1.4bn worth of deals were agreed in the final three months of 2021 in the build-to-rent sector, pushing year-end investment volumes to a record £4.3bn. Annual spend was up 19% on 2020, the previous record year. Deal volumes were also up by nearly a third year-on-year.
Knight Frank forecast that rental values will increase by 17.1% over the next five years in the UK, as the lettings market is underpinned by these strong fundamentals. The equivalent figure is 22.7% in prime central London and 19.3% in prime outer London.
Underlining the strength of demand, the number of international corporate relocation enquires received by Knight Frank from prospective tenants in March reached its highest level since August 2019.
“Demand is hard to satisfy at the moment and it will only grow as summer approaches,” said John Humphris, head of relocation and corporate services at Knight Frank. “If you own a good property at the moment, the chances are that it will be let before it even comes to the market.”
Comments (2)
Yeild, yeild, yeild is what it is all about for BTL. If the figures fit OK, if not … don’t go anywhere near BTL. There is a big risk factor going to materialise this winter and needs to be taken into account. I predict arrears will rise sharply in the New Year for over zealous rents.
If society has a moral duty to favour tenants over other groups (homeowners and landlords) then every rent rise is a good thing, because it encourages more housing to be made available for tenants. More commercial buildings converted into accommodation for tenants, more houses built for tenants, and more large houses converted into flats for tenants.
Landlords and potential landlords torn between investing in stocks and shares or buying a buy to let, are more likely to invest in property due to the higher rents.
It’s easy to see a rent increase as a bad thing for a particular tenant, but please consider the other, possibly homeless tenants, who also want that same house. Higher rents mean more investment and so more houses for everyone. It means tenants only take the accommodation they need, leaving more for other people.
After all, if tenants couldn’t afford it, rents couldn’t rise.