Higher Rents Drive Increase In Buy-To-Let Investments

January 28, 2023

Buy to let (BTL) properties have proved to be more resilient than expected this year. Despite some negative press claiming that private landlords were being driven from the market by changes to tax rules and energy performance certificate requirements, it is estimated that over 12.2% of all homes in the UK were purchased as a BTL investment. 

This represents a rise from last year when the figure was 11.7%, Property Industry Eye reports. Despite this, there is still a serious shortage of rental homes in the UK, which has driven up rents sharply over the last 12 months. According to The Guardian, average rents in some areas have risen by as much as 20%.

At the same time, the number of properties available to rent has fallen by 9%. Some of the worst affected areas include Manchester, where the annual rent increase was 20.5%. Other major cities including Cardiff, Birmingham, Edinburgh, and London have also seen annual rent rises over above 16%.

It is thought that the recent turbulence on the financial markets, which caused mortgage rates to soar, has made many potential first time buyers put their plans on hold for a few months. This may be contributing to less turnover in the rental market than usual, meaning that fewer homes are available to let.

However, as the overheated property market finally shows signs of cooling down, Property Eye believes that this represents a good opportunity for a potential BTL landlord to negotiate a good deal. Sellers may be more flexible on price, particularly for properties that have been on the market for three months or more.

Aneisha Beveridge, head of research at Hamptons, said: “Rising rents are tempting landlords to dip a toe back into the slowing sales market to try and pick up deals they couldn’t have got six months ago. With sellers more open to negotiation and rents rising rapidly, returns for equity rich landlords have been rising.”

She added: “While we’re unlikely to see landlords return to buying at pre-stamp duty surcharge numbers, it’s possible they may outnumber first-time buyers in some months next year, as was common before 2016.”

“While house price growth is slowing, rental growth continues to strengthen, offsetting some, but not all of landlord’s increased costs. It’s these rising costs which are likely to mean rental growth will remain high for the next few years.”

Many of the areas that provide the highest rental yields across England and Wales are in the north east of England. Hartlepool, County Durham, Middlesbrough, Sunderland, South Tyneside, and Redcar and Cleveland are all in the top ten. Other areas in the top ten include Burnley, Neath Port Talbot, and Blaenau Gwent.

Lenders are also showing signs of offering more competitive deals on mortgages to help tempt more BTL landlords, especially now the markets appear to be more settled. This may be good news for those with some blips on their credit history, but who are seeking a good BTL deal. Now might be a good time to contact an adverse credit mortgage broker UK.

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