How High is Demand for Buy-to-Let?

The pandemic transformed how many of us live and work, with many actively embracing working from home, looking to move away from major towns and cities and live in a property with a garden.

But predictions that this would lead to profound and lasting changes to the buy-to-let market in the UK appear to have been premature, as figures show the sector has roared back to life in urban areas since Covid restrictions were eased.

According to figures from Zoopla, demand for rental properties in January 2022 was 76 per cent higher compared to the new year market between 2018 and 2021. At the same time, the stock of rental properties is 39 per cent lower than the five-year average for this time of year, and rents have risen sharply in the last few months.

In fact, rents went up by 8.3 per cent at the end of 2021, which means that average rental growth in the UK is now at its highest level in 13 years.

All these factors indicate that the buy-to-let market continues to offer attractive investment opportunities to existing and prospective landlords, particularly in areas where demand is highest.

Renters returning to cities post lockdown

As we said earlier, the pandemic led to many people seeking housing outside crowded towns and cities, a trend dubbed the “race for space”, and this is still taking place despite restrictions being lifted.

But activity in urban areas is also starting to return to normal, with many people choosing to go back to offices, hospitality businesses trading as normal and young people moving to university cities to study.

This is certainly the case in Manchester, which according to Avison Young, boasted the second-highest rate of economic growth of 30 major European cities during 2021.

The city saw economic growth of eight per cent last year and the report believes this strong rate of growth will hold up in 2022. This is being driven partly by its university population, as Manchester has the highest student retention rate in the UK outside London, with nearly half of the city’s population now aged under 35.

In turn, this is driving huge demand for rental accommodation, not just in the city itself, but also in surrounding areas. For example, Bolton was named by Avison Young as one investment hotspot, along with Preston and Stockport.

Manchester also ranked highly in a study by Simply Business, coming fourth in a list of cities with the biggest growth in property investors. The city saw an 11.4 per cent surge in landlord insurance policies being registered in 2021 compared with 2020.

Birmingham topped the list overall, with growth of 14.6 per cent last year, followed by Bristol (12.7 per cent) and Leicester (11.8 per cent) - a measure of how buy-to-let investors are flocking back to major urban areas and still have confidence in these markets.

What about London?

Rents in London are now starting to recover after falling by around 10% since the pandemic began, prompted, according to Nitesh Patel, economist at Yorkshire Building Society, by an exodus of many younger workers and students. Now bouncing back, demand in the capital is strong and London continues to be seen as a safe option for buy-to-let investors.

Since other major cities have many of the same characteristics as London, such as high student populations, but much lower property prices, landlords are increasingly turning their attention to these locations, as they can attract greater returns.

In short, the race for space outside major towns and cities has not killed off the market in urban areas, as many had feared. Investors can still rely on traditional sources of demand for buy-to-let accommodation, while also potentially capitalising on emerging rural or suburban markets.