Hamptons International is the trading name of Countrywide Estate Agents, a group which carries out regular research into the UK property market.
The firm’s recent analysis suggests that the average private sector tenant is currently better off than a buyer with a 10% deposit, to the tune of £71 per month and this it puts down to the pandemic effect.
Many things have changed in the UK property market since the onset of the pandemic last March, and one of these changes has been that renting has now become cheaper than buying, an encouraging sign for buy-to-let investors.
The research identified only four areas in the UK where it is cheaper to buy than it is to rent: the North East, North West, Yorkshire and Humber, and Scotland.
Pre the pandemic it was cheaper to buy that to rent in every UK nation and region. But the sudden drop in demand for renting last year – as young people gave up their tenancies and returned to living with parents – changed the financial metrics dramatically. City living became considerably less attractive.
It’s the price rises what did it!
Just over a year on from the initial shock of Covid we’ve seen unprecedented house price rises, helped along by the successive Stamp Duty (SDLT) holidays and deadlines introduced by the chancellor.
So, despite a 7.1% rise in average rents over the past 12 months, there’s been a dramatic switch between the costs of renting verses buying as the exceptionally strong house price growth coupled with increases in higher loan-to-value (LTV) mortgage rates have outpaced the rental market.
With more young people being forced to stay in the rental market, being priced out of buying properties for themselves, the demand for rental properties has about-turned in city centres from 12 months ago. Rents are now on the rise again encouraging more landlords to stay in the rental market.
The renting market bounces back
Many young people are more inclined to move around with jobs and locations, they are even prepared to move and live abroad or travel, and the prospect of being tied to long-term mortgage commitments just does not compute with them – therefore for a fairly large section of the working population, renting has become a lifestyle choice.
With more and more young people less focused on purchasing their own property and more on a convenient and flexible renting lifestyle, the demand for rental property in the right locations has made a strong recovery and looks set to remain strong for the foreseeable future.
On the other hand, city centre properties, for those landlords who can afford to buy now, offer relative affordability while prices remain depressed; mortgage deals remain competitively priced and affordable, both offering the prospect of strong profits through healthy rental yields and future capital appreciation.
As might be expected, London has seen the biggest turmoil in the market since the start of the coronavirus pandemic last March, but with things beginning to turn around again and with the cost of renting becoming cheaper than buying, it creates a window opportunity for new and existing buy-to-let investors. The Hampton’s research shows that city centre rents are creeping up again and void periods coming down.
Where should landlords buy?
Young people tend to favour city locations and as workers drift back to their offices, as we all learn to live with the Covid threat, they will want to maintain their pre-pandemic vibrant social lives close to amenities and close to good restaurants, bars, and clubs.
UK hotspots for city centre locations outside of London include vibrant and growing cities such as Manchester, Liverpool and Leeds, cities where prices and rental demand remains strong. These large university cities with great social scenes, strong transport links and relative affordability offer great investment opportunities when compared to London.
However, other regions may offer even better value for buy-to-let investors, such as those identified in the research, the North East, North West, Yorkshire & Humber, and Scotland. These regions still offer excellent rental yields, with the prospect of future capital growth.