Buy-to-let sector heats up rent rises tempt landlords back to market

New analysis from Knight Frank suggests that rent rises are tempting landlords back into the market.

It found that, in some cases, the rental market has outpaced the sales market. While Nationwide recorded 14.3% annual growth in March across the UK, rents in prime areas of London have risen by more than 25% over the last year.

Strict staycation rules meant a surplus of short-let properties came onto the long-let market at the start of 2021, which caused a sharp drop in rents. Supply subsequently shrank as rules were relaxed, which took place as offices and universities re-opened, producing a steep rise.

Would-be landlords have clearly been paying attention, with the number of buy-to-let mortgages issued in the 12 months to February this year the highest figure since 2016, according to UK Finance data.

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 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. However, demand has been in decline since then due to higher costs and fewer tax breaks. 

Andrew Groocock, regional head of sales for Knight Frank’s City, East and North region in London, comments: “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.”

Meanwhile, property yields have looked attractive in recent years with historically low-interest rates and the growing yet undersupplied UK rental market attracting an increasing amount of institutional capital.

More than £1.4 billion 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 £4.3 billion. 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 forecasts 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.

What’s more, the number of international corporate relocation enquires received by Knight Frank from prospective tenants in March reached its highest level since August 2019, underlining the strength of demand.

Written by: Houseladder