Rents have risen by 9.1% in the past year, tempting investors back to the market
Landlords have returned to the property market in the biggest bounce back seen since the Government’s buy-to-let tax crackdown six years ago.
Investors bought more homes in the first three months of this year than they sold – for the first time since the 3 percentage point stamp duty surcharge was introduced on additional properties in April 2016.
Landlords have bought almost 43,000 homes so far this year, equal to a market share of 13.9% and up from 11.9% in the same quarter in 2021, according to analysis by Hamptons, the estate agency. It marks the reversal of a trend that had seen the buy-to-let sector lose more investors than it could attract since the arrival of the stamp duty surcharge.
In the space of six years the private rented sector shrank from a peak of 5.3 million homes to five million in 2021. Rents have risen as a result, with a shortage of homes to rent compounded by surging tenant demand in the wake of the pandemic.
The average monthly cost of a new let rose to £1,115 in March, a rise of 9.1% compared with the same month last year, according to Hamptons.
Aneisha Beveridge from the agency said: “Tax and regulatory changes have weighed heavily on the buy-to-let sector, causing more landlords to sell up at a time when fewer new entrants were looking to buy. While we expect investors to continue purchasing at around the same rate over the course of 2022, it’s unlikely to be enough to make up for the full loss of rental homes.”
Strong rental growth has tempted investors back to the market, with landlords increasingly favouring high yielding locations that will maximise returns and offer a hedge against inflation.
Almost three quarters of London-based landlords bought their buy-to-lets outside the capital in the first three months of this year, compared with less than a quarter a decade ago.
In the North East, which offers the highest gross yields in the country at an average of 9%, investors bought almost 30% of all homes sold in the first quarter of 2022. In the same period last year, landlords made up 20% of buyers in the area.
While investors’ appetite for buy-to-let grew in nine of the 11 UK regions, Scotland bucked the trend. Here, landlords made up 7.9% of buyers in the first three months of the year, down from 10% in the same period in 2021.
Scottish investors have weathered a series of strict tax and regulatory changes, with more red tape on the horizon. The Scottish Government is currently consulting on a raft of rental reforms, including the introduction of rent controls by the end of 2025.
The number of properties in the country’s private rented sector dropped by 22,000 between 2017 and 2020, according to analysis of landlord registrations by the Scottish Association of Landlords.