As has been well documented, buy-to-let (BTL) activity was up strongly last year, but a particular quirk of 2021 was the rise in purchase activity in urban centres.
Many predicted that a consequence of the pandemic would be a surge in demand for homes in suburban or rural areas. Although that was also the case, it was in addition to, rather than at the expense of, activity in urban areas.
Secondary cities and larger towns had the greatest increase
Despite the challenges of Covid, people clearly still want city life and all its cultural and economic benefits.
Our own lending activity showed a 100% increase in BTL purchases in urban postcodes compared to 2020, but strikingly the strongest growth was not recorded in the UK’s major cities. It was the secondary cities and larger towns that experienced the greatest increase during the year. Aside from Manchester and London, no location in the top 10 growth spots would be classed as a major UK city.
Pressure on stock in cities is likely to continue for some time
The strongest growth was recorded in Milton Keynes, where we saw a staggering 667% increase in purchase completions in urban postcodes last year. This was followed by Bristol and Manchester, which both grew by 300%. Other locations in the top 10 included Luton, Plymouth, Stoke, Northampton and Cardiff.
Common factors
Several factors are behind this trend and there appears to be one — or a combination — of three elements that all of these locations share: they are generally within a commutable distance of a major city, they mostly have growing universities and they have healthy local economies.
Tenant demand for urban locations has rebounded strongly as normal life has returned
Additionally, they are vibrant destinations in their own right, plus average house prices in these locations are generally lower than those in our major conurbations.
I’m sure there is also an element of people leaving larger cities in favour of smaller locations that offer the benefits of city life but are closer to rural land or the coast. Our in-house surveyors have reported, for example, that demand for property in Bristol rocketed because of Londoners relocating to a city that mirrored elements of London living but at a slightly slower pace.
London market
With regard to the capital — which remains one of the largest BTL markets in the UK — landlords are still buying but are very particular about where they are targeting.
Other locations in the top 10 included Luton, Plymouth, Stoke, Northampton and Cardiff
Our figures show a 95% increase in BTL completions in London during 2021, with landlords concentrating acquisitions in Zones 2 and 3 (up 93% and 183% respectively) as they balanced the requirements for yield, availability of property and tenant demand.
Zone 1 was generally too expensive to generate an adequate yield, while Zone 4 was a little too far out for many tenants.
Despite this upturn in purchase activity in towns and cities, there remains an imbalance between supply and demand. Tenant demand for urban locations has rebounded strongly as normal life has returned, while rental property supply is generally constrained.
The strongest growth was recorded in Milton Keynes, where we saw a staggering 667% increase in purchase completions in urban postcodes last year
Zoopla’s Q4 2021 Rental Market Report showed that tenant demand in the UK’s major cities was double that of the same period in 2020, while across the board tenant demand was 76% above the Zoopla five-year average and property supply was 39% below.
Pressure on stock in cities is likely to continue for some time. Despite the increase in purchase activity, many landlords have exited the sector or transitioned to the short-term lets market.
As the government prepares to launch its consultation on decent homes standards in the private rented sector, it is important it recognises this delicate balance.