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Britain’s best cities for buy-to-let investors revealed: Bristol takes top spot to knock Manchester off its perch

Bristol has been named the UK’s best city to be a buy-to-let landlord, thanks to its healthy house price growth and high proportion of renters.

Following closely behind Bristol, the prestigious university cities of Oxford and Cambridge were ranked second and third.

This was according to specialist buy-to-let mortgage lender Aldermore’s Buy-to-Let City Tracker, which ranks 50 cities based on how desirable they are for buy-to-let investors.

Manchester, which was awarded top spot last year, dropped to fourth due to having more vacant properties than last year, and a fall in the proportion of residents renting.

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Factors taken into account in Aldermore’s rankings include the average rent, the rental yield, house price growth over the past decade, the number of vacant properties relative to the total housing stock, and the percentage of the city population that rents.

Bristol has ‘huge investment potential’
One of Bristol’s main selling points for landlords is that it has returned solid house price growth over the past decade.

The average house price in the city has risen from £212,261 in 2010 to £348,543 today, according to Land Registry figures.

This means property prices have grown by 5.1 per cent each year. The only city to perform better in this respect was Luton.

Bristol was also one of the best cities for rental demand, with only 0.6 per cent of its housing stock left vacant on average over the past year. This was equalled only by Oxford.

More than a quarter of Bristol’s residents are estimated to be privately renting, creating a large pool of tenants for buy-to-let landlords to pick from.

Alexandra Tan, regional lettings manager at Andrews Property Group said: ‘The lettings market in Bristol is extremely buoyant at the moment with high demand across the board and this hasn’t gone unnoticed by buy to let investors, who see huge investment potential in the city.

‘Bristol is appealing to young professionals and families who are relocating from cities such as London. Many are looking to rent short-term while they find somewhere to buy.

‘There is also a huge student population of around 50,000 in the city, which means there is strong demand for quality student properties.’

However, buy-to-let landlords considering Bristol, they may find that the yields on offer are not quite as enticing as other cities.

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With the average property price in Bristol at £348,543 and average annual rents at £16,037, the typical yield an investor can expect on their purchase is 4.6 per cent.

The rental yield is the percentage return a landlord can expect to make back on the purchase price each year.

For example, a 5 per cent yield on a £200,000 property would amount to £10,000 per year in rental income.

Southern landlords see value of investments soar
Based on Aldermore’s analysis, buy-to-let opportunities in southern cities appear to be more lucrative than elsewhere in the UK.

Over the past 10 years, those who invested in buy-to-let in southern cities have reaped the rewards of considerable house price growth.

For example, second-placed Oxford and third-placed Cambridge have given property investors an annual return of 5 and 4.9 per cent respectively, through house price growth alone.

Both cities also benefit from a very low levels of vacancies (0.6 and 0.7 per cent respectively) combined with a high proportion of residents who rent privately – 29 per cent in both cases.

London, which has continued to fall down Aldermore’s league table in recent years, still comes in sixth, thanks to the relatively high proportion of private renters in the capital.

The typical cost of a London property has risen from £414,000 in 2010 to £659,000, according to the latest Land Registry figures.

As many as 29 per cent of the city’s population rent privately – second only to Bournemouth where 35 per cent of people rent.

However, high house prices mean the yields on offer in most of the top ten cities are comparatively low.

Oxford, Cambridge, London and Brighton offer yields ranging between 3 and 3.6 per cent, which are lower than any other city on the tracker.

For those seeking higher rental yields, Glasgow and Hull are offering average rental yields of 9.4 and 8.9 per cent respectively.

Hull currently has an average house price of £127,344, which means it is also the most affordable city of all the 50 locations included on the tracker.

However, properties with higher yields are often seen as higher risk, as they are commonly in locations where landlords might find it harder to re-let or sell the homes if they needed to.

Other high yielding cities include Stoke, offering a 8.3 per cent yield and Aberdeen offering a 8.1 per cent yield; as well as Dundee and Sunderland offering 7.8 and 7.7 per cent yields respectively.

Capital gains on the rise in Northern cities
Furthermore, there is some indication that property prices in certain cities that have not enjoyed house price growth over the past decade might now be starting to pick up.

Liverpool, which finds itself 33rd on Aldermore’s index, has seen 10.6 per cent house price growth in the past year alone, according to Zoopla’s latest Hometrack report.

Those investing in Liverpool can achieve 7.3 per cent yields, according to Aldermore’s analysis.

However, the city has a relatively high long-term vacancy rate of 2.2 per cent, suggesting that investors need to ensure they do their research before buying.

Manchester, which has average yields of 5.9 per cent, saw house prices increase by 8.7 per cent over the past 12 months, according to Zoopla.

And Sheffield and Belfast, which came 46th and 43rd on Aldermore’s tracker, have seen house prices grow by 7.9 and 7.7 per cent respectively.

Hamptons’ latest four year forecast predicts the the greatest house price growth to take place in Scotland and the North East between 2021 and 2024.

It predicts property prices will rise by 20 per cent in Scotland and 21.5 per cent in the North East during the four-year period.

On the other hand, it only predicts London to experience 7 per cent house price growth in that time, whilst the South West and the East of England are set to fare little better with only 11 per cent growth anticipated.

However, choosing a buy-to-let investment is not as simple as looking at where it is located on the map.

There is always an element of guess-work when it comes to predicting future house prices, but looking out for planned improvements in cities will help investors to make a more informed decisions.

For example, it could be that the transport network is being improved, major building projects are taking place, or that new retailers are popping up in the town centre.

Michael Cook, national lettings managing director at property company Leaders Romans Group said: ‘Buy-to-let investors should focus on the cities benefiting from major infrastructure and transport programmes as well as any regeneration schemes.

‘Manchester is a good example, having benefitted from the trans-Pennine rail scheme in recent years.

‘Towns and cities fringing the Crossrail route will also prove good options, as the programme is estimated to contribute £42billion to the UK economy.

‘This will dramatically improve transport links in London and the South East, as well as driving house-building, supporting wider regeneration and creating jobs and business opportunities.’

Source: This is Money

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Acute Demand Pushes Rental Growth To New High

‘Acute rental demand’ over the three months to September 2021 has pushed UK rental growth to its highest level since 2008, Zoopla has reported.

And the upward pressure is set to continue, said the property portal. Demand is continuing to outstrip supply which is running at 43 per cent below the five-year average .

On average UK rents are now 4.6 per cent higher than a year ago – 6 per cent if London is excluded from the calculation – and 3 per cent up in the last quarter alone.

Even London rents are showing signs of recovery. After 15 months of consecutive falls, London’s rents increased by 4.7 per cent between June and September.

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‘The market is being shaped by an ongoing supply and demand imbalance, with demand continuing to outstrip supply’, said Zoopla.

‘The imbalance has been compounded by both long-term structural issues such as landlord divestment following the 3 per cent stamp duty levy introduced in 2016, and more the immediate post-lockdown demand, which collectively have eroded available supply’.

Rental growth is also explained in part by tenant demand moving up the price bands. This reflects the continuing search for space, which has not only characterised the sales market, but the rental market, too, said Zoopla.

The regions registering the highest levels of rental growth are among those that are the most affordable when compared to the UK average, and as such, there has been more headroom for rents to increase.

‘Rental growth is close to, or at, a 10-year high across most UK regions – except for in London and Scotland. Rents are up most in the South West, 9 per cent year on year, followed by Wales, 7.7 per cent, and the East Midlands, (6.9 per cent .

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‘In many of the UK’s largest cities, annual rental growth is running well ahead of the five-year average rate of growth. Bristol leads with 8.4 per cent growth in the year to September, followed by Nottingham at 8.3 per cent, and Glasgow at 7.2 per cent.

Rental demand in the central zones of Manchester, Edinburgh and Leeds has at least doubled over Q3 compared to Q1, and in Birmingham demand has increased by 60% – buoyed by the return of office workers and students, and the lure of city life.

‘The swing back of demand into city centres, including London, has underpinned another rise in rents in the third quarter, especially as the supply of rental property remains tight’, said Zoopla head of research Gráinne Gilmore.

‘Households looking for the flexibility of rental accommodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities. Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location’.

Source: Landlord Knowledge

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Stamp Duty holiday stimulated Buy-to-Let purchases in the South

London, the South East and the South West led the jump in buy-to-let house purchases during the Stamp Duty holiday, analysis by Paragon Bank has revealed.

Comparing the period when landlords received the full 3% Stamp Duty discount – July 2020 to June 2021 – with the last comparative period not impacted by Covid – July 2018 to June 2019 – showed the number of buy-to-let purchases increased by 52% in London.

Paragon’s analysis of industry data showed the South East recorded a 49% increase in purchase completions, whilst the South West saw buy-to-let purchases rise by 41%.

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At the other end of the scale, the West Midlands saw the smallest increase, with transactions rising by 12%, whilst Wales and Scotland, which had different housing stimulus measures, rose by 8% and 1% respectively.

The regions that saw the greatest increases were those where the Stamp Duty saving was greatest based on average house prices. Landlords could save up to £15,000 in Stamp Duty costs during the holiday period.

However, they were also the regions that saw the greatest falls in house purchases after the Stamp Duty 3% surcharge for buy-to-let and second homes was introduced in April 2016. Between 2015 – the last year before the surcharge was introduced – and 2019, buy-to-let purchases fell 55% in London and 51% in the South East, whilst the South West decreased 41%. Despite the Stamp Duty holiday, transactions during the July 2020 to June 2021 12-month period were still 30% below 2015 levels in London and 29% lower in the South East.

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RegionStamp Duty holiday % increase vs July 18 – June 19Proportion of BTL purchase (July 20 – June 21)July 20 – June 21 % decrease vs 2015
Greater London52%15.5%-30%
South East49%20%-29%
South West41%8.4%-17%
North East29%4.7%6%
East Anglia28%3.8%-15%
East Midlands24%8.2%-4%
North West17%11.9%-7%
Yorkshire & Humber17%8%8%
West Midlands12%9.6%2%
Wales8%3.7%-5%
Scotland1%6%-13%

Paragon Bank Managing Director of Mortgages Richard Rowntree said: “The impact of the Stamp Duty saving on regions where house prices are generally higher is clear to see, with transactions in London and the South increasing by approximately half. There were also strong increases in the South West, North East and East Anglia.

“Despite this, tenant demand still outweighs supply in large swathes of the country, which is leading to record levels of rental inflation, plus transactions still remain significantly below the level experienced before the Stamp Duty surcharge was introduced in 2016. As the Government pursues its Levelling Up agenda, it needs all facets of the housing market to be working effectively, including a sufficiently sized private rented sector to facilitate labour market mobility and provide good quality homes for those who cannot or don’t want to own a home”

Source: Property118

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Rental costs rocket as demand outstrips supply, finds Zoopla

Annual rental growth reached the highest level for 13 years at 4.6% in the third quarter, according to the latest index from Zoopla.

Across the UK, rents hit an average of £968 in the three months to the end of September as demand from tenants outstripped the supply of available properties.

When London is excluded, average rental growth across the rest of the UK was 6%, with demand doubling in central Leeds, Manchester and Edinburgh and London from Q1 to Q3.

Rental growth at or near a 10-year high across most UK regions – except for in London and Scotland.

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London’s rents have returned to positive territory after falling for 15 consecutive months, with an increase of 4.7% between June and September as offices reopened and workers returned to the city.

However, London rents are still 5% lower than they were at the start of the pandemic.

Zoopla forecasts that the undersupply of rental properties across the country and the strength of the employment market will support rental growth into 2022.

It expects that across the UK, but excluding London, rents will rise by 4.5% by the end of next year.

Meanwhile, London rental growth is expected to pick up to 3.5%, with rents ultimately exceeding pre-pandemic levels.

Zoopla says that the shortage of rental properties has been compounded by both long-term structural issues such as landlords leaving the market following tax changes as well as short-term issues with a surge in demand when lockdown ended.

Rental growth is also explained in part by tenant demand moving up the price bands in the so-called “race for space”, which has not been restricted to the sales market.

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UK monthly rents now account for 37% of an average income for a single tenant occupant.

However, even with strong rental growth, affordability remains in line with the five-year average.

The regions registering the highest levels of rental growth are among those that are the most affordable when compared to the UK average, which has allowed more headroom for increases.

The South West saw the biggest annual increases at 9%, followed by Wales at 7.7% and the East Midlands at 6.9%.

In many of the UK’s largest cities, annual rental growth is running well ahead of the five-year average rate of growth.

Bristol leads with 8.4% growth, followed by Nottingham at 8.3%, and Glasgow at 7.2%.

Zoopla head of research Gráinne Gilmore says: “The swing back of demand into city centres, including London, has underpinned another rise in rents in Q3, especially as the supply of rental property remains tight.

“Households looking for the flexibility of rental accomodation, especially students and city workers, are back in the market after consecutive lockdowns affected demand levels in major cities.

“Meanwhile, just as in the sales market, there is still a cohort of renters looking for properties offering more space, or a more rural or coastal location.”

By Leah Milner

Source: Mortgage Finance Gazette

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Did the Stamp Duty Holiday Ignite a BTL Fever?

Despite the reduction in stamp duty bills, there is little sign that the stamp duty holiday led to large numbers of new investors purchasing buy-to-lets.

At their peak this year, investors purchased 14 per cent of homes sold across Great Britain in February, the month before the original end of the stamp duty holiday. However, over the entire course of the 15-month tax-break investors purchased 12 per cent of homes sold in Great Britain. This is marginally up from an average of 11 per cent during the 12 months before the holiday, but far from the 17 per cent recorded in Q4 2015 – the run up to the introduction of the 3 per cent stamp duty surcharge on 1 April 2016.

This means there were a total of 215,000 investor purchases across Great Britain between July 2020 and September 2021. While this figure is up from 164,300 during the equivalent period in 2018 and 2019, more transactions have taken place by other buyer types. Both these numbers remain below the 242,400 purchases which were made during the 15-month run up to the introduction of the 3 per cent stamp duty surcharge on 1 April 2016.

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Over the course of the15-month stamp duty holiday, the average buy-to-let investor’s tax bill fell by 35 per cent – from £8,500 in the month before the holiday, to an average of £5,500 between July 2020 and September 2021. For the average investor, this equates to almost three months’ rent.

The average bill came to £5,300 during the first 12 months of the holiday when investors paid the 3 per cent stamp duty surcharge on the first £500,000 of any purchase. It then rose 17 per cent to £6,200 when the threshold fell to £250,000 between July and September 2021. Average bills are set to return to around £8,400 from 1 October 2021, just below what investors were paying on the eve of the stamp duty holiday.

Overall, the holiday meant that the average investor paid less in stamp duty than at any time since April 2016, when the 3 per cent stamp duty surcharge was introduced. Despite this, the average bill during the holiday remained twice the level it was before the surcharge was introduced. This is partly why there hasn’t been as much of an increase in investor purchases this time around.

There is little indication that investors used their savings from the holiday to buy bigger properties in more expensive areas. Instead, 83 per cent of investor purchases were under £250,000, meaning their savings from the holiday were significantly smaller than those enjoyed by home movers. It also means that investors have been less sensitive to the change in the nil-rate stamp duty threshold since they tend to buy cheaper properties.

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During the holiday the average price paid by a landlord rose by just 1 per cent to £181,000, despite house price growth of 10 per cent over the same period. This suggests landlords were happy to pocket the tax saving rather than use it to buy a property which would generate more rent.

RENTAL GROWTH

Average rental growth across Great Britain hit 8.0 per cent in September, the third fastest annual rate of growth recorded this year. Nationally, regions in the South of England have continued to drive rental growth. The average rent on a new home rose 14.8 per cent in the South West, 14.7 per cent in the South East and 10.8 per cent in the East of England. September marked the sixth consecutive month where annual rental growth hit double figures in the South West.

London rents have also continued to recover. Although Inner London rents fell for the twentieth consecutive month, the 4.4 per cent annual fall was the smallest decline this year, and smaller than the 22.1 per cent decrease recorded in April when the market bottomed out. In Outer London, rents grew 3.2 per cent annually in September, rising for the thirteenth consecutive month. This kept Greater London rents overall in positive territory, up 1.8 per cent year-on-year.

Source: Property Wire

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BTL availability reaches highest level since 2007

September started with 2,968 products on offer in the buy-to-let (BTL) sector, making BTL availability the highest on Moneyfacts records since October 2007 (3,305).

This is 71 products more than there were on offer pre-pandemic in March 2020 (2,897).

The average overall 2 and 5-year fixed BTL rates reduced in September by 0.03% and 0.04%, respectively.

At 2.94%, the 2-year fixed average was the lowest since January (2.89%), and at 3.25% the 5-year fixed equivalent was the lowest since December 2020 (3.25%).

At 85% loan-to-value (LTV), BTL availability remained unchanged at just 19 products this month, 13 less than were available in September 2019.

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The average 2 and 5-year fixed rates in this bracket of 5.61% and 5.83% were 0.88% and 0.44% higher than what was on offer two years ago.

Eleanor Williams, finance expert at Moneyfacts, said: “As we pass the 25th anniversary of the first BTL mortgages as we know them, our data gives landlords cause for positivity, as the number of products for them to choose from has risen by 153 this month, and at 2,968 is 1,162 higher than this time last year (1,806 Sep 2020).

“The resilience of this sector in the aftermath of a challenging 18-months is clear as choice now exceeds the number of deals available before the pandemic in March 2020 by 71 options.

“Further cause for celebration is that the interest charged on BTL mortgages is falling, with the average overall 2 and 5-year fixed rates dropping by 0.03% and 0.04% this month, to 2.94% and 3.25% respectively.

“Compared to a year ago, on face value borrowers will notice average rates are higher today.

“However, the rates a year ago were driven by the impact of the pandemic and product availability was low – particularly in the higher LTV tiers where rates are generally higher due to pricing for risk.

“As it stands, compared to a pre-pandemic September 2019, both the average 2- and 5-year fixed BTL rates are lower by 0.03% and 0.19% respectively, indicating rate pricing competition for those looking for new finance for an investment property.

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“As rental demand remains high, BTL could be a worthwhile investment and the rise in overall product choice and fall in average rates is positive.

“However, a note of caution as lenders’ enthusiasm to improve ranges seems to dissipate at the top end of the BTL LTV spectrum.

“The maximum 85% LTV bracket has not only seen availability stall at 19 deals, but also the average two- and five-year fixed rates on offer for landlords with just 15% equity or deposit are a quite staggering 0.88% and 0.44% above their September 2019 equivalents, indicating that while lenders are competing for business, this eagerness does not seem to extend to the riskier end of the market yet.”

By Jake Carter

Source: Mortgage Introducer

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Buy-to-let mortgages reach their 25th birthday

The private rented sector has almost doubled in size since the first buy-to-let mortgage launched 25 years ago this Friday.

In 1996, the Association of Residential Landlords (ARLA) worked with a small group of lenders including Paragon and NatWest to develop a mortgage product specifically tailored to landlords.

Buy-to-let was devised to encourage new investment into a private rented sector (PRS) that had been in long-term decline.

The recession of the early 1990s exposed a lack of options for those for whom home ownership was out of reach, but who couldn’t qualify for diminished social housing provision.

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The PRS had fallen from over 70% of homes post World War I to less than 10% by the late 1980s, fuelled by the growth of social housing, successive policies to encourage home-ownership and a legal landscape that afforded little legal protection to landlords.

The only way a landlord could finance a property portfolio before BTL mortgages were launched was through commercial mortgage terms.

Often offered a low loan-to-value and with high rates, these didn’t always make the most attractive option for investors.

As a result, it is thought that some landlords used standard residential mortgages but in cases where the tenants weren’t declared, the terms of the mortgage would have been breached.

That was until the launch of the first specialist buy-to-let mortgage in 1996.

At the time, John Major was prime minister, Princess Diana and Prince Charles divorced and mad cow disease was causing panic.

That same year the Spice Girls’ debut single, Wannabe, was released and England hosted the European Football Championships, cheered on by fans singing David Baddiel and Frank Skinner’s Three Lions (Football’s Coming Home).

The private rented sector (PRS) has almost doubled in size, expanding from 2.4 million households in 1996 to 4.4 million in England today.

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Now the PRS accounts for 19% of UK households, which is more than the social housing sector, which accounts for 17% of households.

The portion of homes in the sector classed as “decent” under government standards has consistently increased, rising from 53.2% in 2006 to 76.7% last year.

There has been a 272% increase in PRS homes with an energy rating of C or above since 2009 to 1.8 million today.

Paragon managing director for mortgages Richard Rowntree says: “Since being launched as a mortgage product specifically designed for landlords 25 years ago, buy-to-let finance has helped to transform the PRS.

“It is now a vital component of the UK’s housing provision, with renting no longer a last resort.

“The PRS is a tenure of choice as well as need and this is supported by the diversity of those who actively choose rented homes, benefitting from the flexibility they provide.”

Former Arla Propertymark president Robert Jordan says: “We at Arla realised that the housing market was at a low ebb; houses weren’t selling, which meant a lot of people were letting their homes to move to a new property.

“When the housing market picked up those properties sold and there was a need for more rented properties to fill the gap for tenants, but we couldn’t see where we would find more homes to let.

“It became clear that the mortgage options weren’t suitable, so together we designed a product, buy-to-let, that would enable more investors to purchase an investment property and let it under the new Housing Act 1988 regulations.

“Paragon and NatWest were the first two mortgage lenders we approached. Today, private landlords house approximately five million households across the UK at no cost to the exchequer.”

By Leah Milner

Source: Mortgage Strategy

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Buy-to-let market on the rise: is now the time to invest?

Buy-to-let landlords are becoming increasingly confident about expanding their portfolios, as rents rise and mortgage rates fall. That’s according to a new report by Shawbrook Bank, which found investors are targeting properties with gardens in an attempt to entice tenants.

A third of landlords look to expand portfolios

New research by Shawbrook Bank has found that a third (34%) of landlords are looking to expand their portfolios in the next 12 months. One in 10 plan to buy in a different area from their current properties, with their plans driven by changes in tenant priorities since the start of the pandemic. Of those looking to invest, 30% say they’ll seek out more rural locations, with the North East of England a popular choice. After a tough year, there are signs confidence is returning to buy-to-let. Two thirds of landlords (67%) told Shawbrook they are positive about their prospects in the next year.

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What are landlords looking for in investment properties?

The pandemic has had a significant effect on what we want from a home, with time spent away from the office and the prospect of hybrid working in the future changing buyer and tenant priorities. Shawbrook’s research shows landlords are reacting to the trend of home movers looking for bigger properties with gardens or access to outside space. The chart below shows the top five priorities for landlords looking to buy an investment property.

What’s happened to rental yields?

Average monthly rents in the UK range from just £396 in the North East of England to £1,755 in London, according to Shawbrook’s data. Across the UK, rents have increased by 1.6% year-on-year, with the South West, East Midlands and West Midlands all seeing growth of more than 2%. Changes to rent prices don’t tell the whole story, however. London might have the highest rents in the UK, but it also has the lowest rental yields for landlords – reflecting the high up-front cost of buying properties in England’s capital. Cheaper areas are more likely to enjoy significant growth in property values, which then has a significant knock-on effect on yields for landlords. The chart below shows how rental yields vary around the UK, from less than 4% in the South East of England to nearly 6% in Scotland. The UK average is 4.3%.

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Lack of supply could boost buy-to-let profits

Rents have only risen slightly over the past year, but rising house prices mean the value of buy-to-let homes has increased markedly. Shawbrook says the value of the private rented sector had grown to £1.4 trillion by the end of 2020, with buy-to-let properties increasing in value by 5.8% year-on-year. With the market now cooling down a little, landlords may be handed a boost by a lack of supply. Shawbrook says that rented homes made up 17% of all households in England, Scotland and Wales as of March 2021. That might sound like a lot, but it’s actually a fall of 2.6% year-on-year. With the number of available rental properties decreasing and tenants competing for bigger homes, it may be that rent prices tick up more substantially the next 12 months.

Landlords take advantage of stamp duty holiday

The stamp duty holiday resulted in UK house prices rising by more than 10% year-on-year, and owner occupiers weren’t the only ones to benefit. Shawbrook’s data shows that 28% of landlords bought an investment property during the tax break. Professional landlords were most likely to take advantage of the savings, with 43% of portfolio landlords (those with four or more buy-to-let properties) making additional purchases. Nearly half (46%) of landlords who invested during the stamp duty holiday said they wouldn’t have done so if not for the savings on offer.

What’s going on with mortgages for landlords?

Buy-to-let mortgage availability crashed in 2020, with lenders withdrawing huge numbers of deals after the Covid-19 outbreak. Now, though, the market has settled down, and the resulting lower rates are good news for landlords looking to buy or refinance. Data from Moneyfacts shows that average buy-to-let mortgage rates have been falling for months, and are now just above the levels seen before the pandemic.

Is now the time to invest in buy-to-let property?

If you’re tempted to invest in buy-to-let, it’s important to do your research first – especially if you’re new to the game. When calculating anticipated rental yields, landlords look to what’s happening with rent prices and the prospect of the property growing in value, but past performance doesn’t always provide a guarantee. Savvy landlords will carefully research local markets to find out which types of properties are in short supply and thus in demand from tenants.

By Stephen Maunder

Source: Which?

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Rents outside London rising at highest rate for over a decade

Rents outside London are currently rising by 5% year on year, their highest rate for over a decade, the latest Zoopla Rental Market Report has shown.

Zoopla attributed the increases to a widening imbalance between rental demand and supply which pushed rental growth to the highest level seen since 2008.

Meanwhile, in London itself rental declines have bottomed out amid rising demand, reaching -3.8% in July, from -9.8% in February.

The average monthly rent outside London is now at £790, up from £752 in July last year.

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Growth hit 10-year highs in the East Midlands (+6.8%), the North East (+6.5%), the South West (+7.6%), Wales (+6.4%) and Yorkshire & the Humber (+4.9%) in July.

Rental growth in some cities and towns rose even further, with growth in Wigan and Mansfield reaching double figures, at 10.5% and 10% respectively. Hastings, Blackburn, Barnsley and Norwich are registering growth of 9.4% or more.

In London, average rents in the 12 boroughs in inner London rose by 2.3% in the three months to July with the average rent in the capital standing at £1,593pcm.

Nigel Purves said: “This report shines a light on just how deep-rooted the UK’s property affordability crisis actually is. Despite the pandemic-induced exodus, rents in big cities continue to soar, with young professionals and divorcees leading the renewed drive for city-living.

“But demand for gardens and more space doesn’t necessarily align with the reality of properties on offer.

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“Renting can be a good option for some, but it should be just that, an option. Millions of people in the UK are stuck in properties that don’t meet their needs, especially families with young children, and key workers who are wedded to a particular area because of their jobs and support networks.

“These groups are left paying high rents on often unsuitable rental homes. And to add insult to injury, they have no security and very little freedom: they can be kicked out at nearly any time, and their landlords stop them keeping pets or even changing the paint colour on the walls.

“This continued pressure on saving combined with the unfair mortgage lending criteria means that even if they can afford a deposit and mortgage-level monthly rents, these reluctant renters are unable to take their first step onto the property ladder.

“It’s vital the government treats this issue as urgent – if it truly hopes to turn ‘Generation Rent’ into ‘Generation Buy’, it must work together with the property industry to innovate and provide alternative routes to homeownership.”

Source: Mortgage Introducer

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Average buy-to-let home gained £15k in value during the pandemic

The value of the private rented sector in England, Wales and Scotland has grown 5.8 per cent to £1.4trillion following the housing market boom of the past year. The average buy-to-let property was worth 5.6 per cent – or around £14,500 – more in March 2021 than it was at the start of the pandemic, reaching approximately £259,000.

However, while the overall value of the buy-to-let sector increased, the number of homes available actually fell.

This was according to research from mortgage lender Shawbrook Bank into the effect the pandemic had on landlords.

It found that Wales, the North West and Scotland had seen the most dramatic increases in price, totalling 11 per cent, 10.7 per cent and 9.5 per cent respectively.

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Rising prices in these areas reflected the trend of people moving out of cities in search of more green space.

Meanwhile, prices in the capital increased 2.5 per cent over the last year – though London remained the most expensive region in the UK to buy a rental property.

The 5.6 per cent growth does not quite match the phenomenal price rises seen in the mainstream housing market, though it may have increased since the study was undertaken in March.

According to the latest Nationwide index, residential house prices jumped 10.5 per cent in the year to the end of July.

Landlords were able to benefit from the stamp duty holiday which saved them up to £15,000 by cutting the tax on the portion of any property purchase under £500,000.

However, they still had to pay the additional 3 per cent surcharge on second homes, which they have been liable for since 2016.

More than a quarter of landlords said they had bought a property this year because of the stamp duty holiday, rising to 43 per cent of those who owned four or more properties.

A further 13 per cent were in the process of buying a property when surveyed, as a direct result of the government incentive, according to Shawbrook.

Of those that had bought, or were in the process, 46 per cent of landlords said they would not have done so had it not been for the holiday.

John Eastgate, managing director of property finance at Shawbrook Bank, said: ‘Against the backdrop of the pandemic, the private rented sector has once again shown its strength and the important role it plays.

‘Landlords are looking to expand their portfolios due to a combination of rising house prices, attractive yields and growing demand from tenants.’

Where can landlords find the best rental yields?

For landlords looking to buy over the next year, Shawbrook revealed the regions that have the highest rental yields.

It found that the best returns could be had in Scotland, with an average yield of 5.8 per cent; the North West, with an average of 5.5 per cent; Yorkshire and the Humber, with an average of 5.4 per cent.

While London may generate the highest rents, yields for London buy-to-let properties were among the lowest at 3.9 per cent, below the UK average of 4.3 per cent.

Nearly a third of the landlords surveyed said they planned to buy their next property in a more rural location.

As well as considering the locations where they could get the best yields, landlords were also looking for property features that would make their homes more attractive to tenants in a post-pandemic world.

More than a third said they were looking for a property with a garden, while 27 per cent were seeking one with a ‘decent-sized’ living space.

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Sector’s value grew – but number of rented homes fell

While the value of the buy-to-let sector grew, its size decreased as some landlords decided to leave the market and sell their properties.

Numbers of privately rented homes fell by 2.6 per cent to 4.8million between March 2020 and March 2021, according to Shawbrook, now making up 17 per cent of total housing stock.

There has been an outflow of landlords in recent times due to factors such as a stricter tax regime, and tougher energy efficiency rules coming over the horizon.

According to separate data from the National Residential Landlords Association, the proportion of landlords intending to buy new properties saw a dramatic drop from 19 per cent in the first quarter of 2021, to 14 per cent in the second quarter, according to the NRLA.

In comparison, the proportion looking to sell up was 20 per cent, up three percentage points from the first quarter of the year.

Another possible reason for this was that landlords’ income took a hit during the pandemic, as they gave rent reductions and payment holidays.

According to Shawbrook 44 per cent of landlords reduced monthly rent for their tenants at some stage.

However, some landlords said the impact of the pandemic was not as bad as they initially expected.

Jackie Tomes, founder and chief executive of Kent-based property company Tomes Homes, said: ‘When the pandemic hit we were forecasting potential drops in rental income at 25-30 per cent, but the reality has been very different for us.

‘We have strong relationships with our tenants, and while some have (and continue to) struggle, we have been very successful at agreeing repayment plans.

‘We’ve also noticed that voids have been down because tenants haven’t been moving to a new house. So higher arrears, but lower voids.’

In the year to the end of March 2021, average rents increased by 1.6 per cent.

Fewer properties = fiercer competition among tenants
As the supply of properties decreased, the Shawbrook study suggested that demand from tenants for the homes that were available grew.

In total, 42 per cent of landlords that had remained in the market said they had seen demand increase for their properties in the past 12 months.

In addition, two thirds (67 per cent) of landlords said that they were confident about the future of the property market over the next twelve months.

Tomes continued: ‘Recently, we have seen an incredible surge of tenant demand. The locations we are invested in are seeing even more “DFL’s” (the Down from Londons) wanting to rent to test out a new lifestyle further from the city.

‘While all property types have seen increased demand due to limited supply in the market, larger 2-3-bedroom properties are seeing even more interest.’

This tallies with data from the NRLA which found that nearly 39 per cent of its members believed demand for homes to rent increased in the second quarter of 2021 (April to June) – a five-year high.

This could be a product of tenant demand coming back into the market, as many put off moves during the pandemic.

Shawbrook got its data from Office for National Statistics population projections and the English Housing Survey, as well as Ministry of Housing, Communities & Local Government figures.

By HELEN CRANE

Source: This is Money

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