Buy-to-let 'bounces back'

Rent rises are tempting landlords back and the buy-to-let market is growing again.

The number of buy-to-let mortgages issued in the 12 months to February was the highest since 2016, according to data from UK Finance.

And separate figures from estate agency Hamptons show that in the first three months of this year, investors bought more homes than they sold.

Some landlords pulled out of the market due to tax and regulatory changes, including a 3% stamp duty surcharge on the sale of second properties, a reduction in mortgage interest relief, and new energy performance requirements.

As a result, the number of homes available in the private rented sector shrank from a peak of 5.3 million in 2017 to 5.0 million in 2021.

However, many landlords still view buy-to-let as a good investment.

In the first quarter of 2022 investors bought a total of 42,980 homes in England, Scotland and Wales. This equates to £8.5bn worth of property -- nearly twice the figure (£4.6bn) recorded pre-Covid in the first quarter of 2019.

Of all properties sold during the period, 13.9% were bought as buy-to-lets, up from 12.0% in the same period in 2021.

To put this in context, in the first three months of 2016 investor purchases accounted for 15.9% of all homes sold but this fell dramatically in the wake of the tax surcharge, which came into effect in April 2016. Since then, investor purchases have hovered around the 10% mark.

With the share of homes sold by investors falling from 14% to just 10% year-on-year, it means that there was a net gain of 13,480 rental properties in Great Britain in Q1 2022, compared with a 7,640 net loss in Q1 2021.

The figures also reveal that with a shortage of properties on the market, investors are increasingly paying more than the asking price.

For the first time since Hamptons' records began, the average investor is now paying over 100% of the asking price for a buy-to-let in England and Wales.

Meanwhile, rents have continued to climb and the average monthly cost of a new let rose to £1,115 in March, up 9.1% compared with the same month last year.

Estate agency Knight Frank forecasts that rental values will increase by 17.1% over the next five years.

"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.

John Humphris, head of relocation and corporate services at Knight Frank, added: "Demand is hard to satisfy at the moment and it will only grow as summer approaches. If you own a good property at the moment, the chances are that it will be let before it even comes to the market."