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.
Overall, landlords are set to buy a slightly higher proportion of homes in 2022 than they did in 2021. During the first 11 months of the year, 12.2% of homes were bought by an investor in Great Britain, the highest level since 2016 and up marginally from the 11.7% recorded during 2021. However, landlord purchases remain below their 15.5% peak in 2015, the year before the 3% stamp duty surcharge was introduced.
Despite the proportion rising between 2021 and 2022 however, fewer sales taking place overall mean the absolute number of investor purchases will be down by around 30,000 on last year.
The recent reassurance of landlords who had previously been priced out of a heated market has meant the numbers registering in a branch to buy are up 9% on last year, despite an overall fall in buyer demand.
Earlier in the year, many landlords struggled to make deals stack up while paying record prices and facing stiff competition from other buyers. Instead, they chose to sit back and wait. The proportion of investors paying over the asking price remained above 40% throughout 2021, before peaking at 48% in April 2022 (alongside the wider market).
However, over the last few months some landlords have re-emerged, turning their attention to homes which have been lingering on the market. In November, 37% of offers by landlords were on homes without any competing offers, up from just 14% in January. A less competitive market means that in November just 25% of investor purchases were agreed above the asking price, compared to 30% among first-time buyers.
It's a similar story when it comes to time on the market, with the average investor purchasing a home which had been on the market for 54 days in November, up from just 33 days in November last year.
Landlords’ slow re-emergence has been underpinned by investment in places towards the top of the yield league table. So far this year 56% of new investor purchases have been in places with average yields of 6% and above, a figure which has risen from 40% a decade ago. Meanwhile 85% of homes sold by investors this year were generating a yield of sub 6%.
Hartlepool offered new investors the highest average gross yield (9.9%) in England and Wales for the second year running. All the top 10 yielding locations were based in Northern England or Wales, with North East Lincolnshire (8.2%) the highest yielding location across the South and Midlands at number 17.
Portsmouth is the highest ranked local authority anywhere in the South of the country, coming in at number 91 with average gross yields of 6.4%. Meanwhile Bexley is the highest yielding London Borough, but with an average gross yield 5.9% the area sits in 139th place across the country.
While house price growth is slowing, rental growth continues to strengthen, offsetting some, but not all, of landlord’s increased costs. Annual rental growth accelerated for the third month running, with average rents up 7.9% across Great Britain on the same time last year.
Rental growth was led by Scotland where rents on newly let homes, which are exempt from the price freeze introduced in September, rose by 12.3% over the last year. This rate is faster than any other region in Great Britain or at any time since the Hamptons Lettings Index was launched in 2012.
In the capital, the average Outer London rent rose 8.9%, passing the £2,000 pcm mark for the first time. Meanwhile the annual pace of Inner London rental growth softened to 20.4%. Here, the falling pace of growth reflects rents having fully recovered back to where they were before the pandemic, with any further rises pushing rents to record highs.
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. That said, with around 39% fewer homes available to rent than in 2019, this increase is unlikely to ease the pressure on rents anytime soon.