Buy to let landlords are now targeting smaller cities and towns – usually home to a university - rather than large urban areas with Milton Keynes being the most popular destination, data reveals.
Paragon Bank has carried out research to reveal where the strongest increase for its buy to let mortgage business has occurred over the past year.
They found that in 2021, the highest number of BTL completions was in Milton Keynes.
The banks says that the increase is an impressive 667%, compared with 2020’s figure.
BTL mortgage completions by investors
The data also highlights that BTL mortgage completions by investors in Bristol grew by 300% over the same period, and by 258% in Luton.
However, big cities still did well with buy to let completions in Manchester and London growing by 300%, with Plymouth completions reaching 183%, and completions in Stoke being 157%.
The top 10 BTL investor hotspots also include Northampton with a 133% rise in completions, Cardiff on 70% and in Nottingham completions rose by 64%.
Richard Rowntree, the director of mortgages at Paragon Bank, says that in 2021, landlord demand for town and city centre properties was strong.
Landlords are reacting to a tenant demand
However, he says that landlords are now reacting to tenant demand for living in urban areas, but in smaller cities and towns.
He said that demand is led by one, two or even three factors that each of the popular destinations shares.
Mr Rowntree explained: “They mostly have a vibrant university, are in a commutable distance from a major city and they have a healthy local economy.”
The figures from Paragon also highlight a 95% increase in BTL completions in London last year.
The research reveals that landlords are focusing their acquisition plans in Zones 2 and 3 as they look for tenant demand, property availability and strong yields.
Capital appreciation enjoyed by landlords
The research from Paragon Bank coincides with findings published by Nationwide that highlight the impressive capital appreciation that has been enjoyed by landlords in their portfolio.
Their data reveals that house prices grew by 12.6% in the year to February, which is up from January’s figure of 11.2%.
Nationwide says that this is the strongest growth in house prices since June 2021.
Their index also reveals that between January and February, house prices grew by 1.7%, which is the seventh consecutive increase.
Average house price has now risen above £260,000
Robert Gardner, the chief economist at Nationwide, said that the average house price has now risen above £260,000 – which is a rise of £29,162 over the past year.
It’s also the largest ever annual rise in cash terms since the index began in 1991.
The data highlights that the average home price is now 20% higher, or £44,138, than it was in February 2020, which is the month before the UK was hit by the Covid-19 pandemic.
Mr Gardner added: “Mortgage approvals are running above pre-pandemic levels and in recent months, the housing market activity has remained robust.
“A limited stock of homes and demand has kept an upward pressure on house prices.”
However, he added that he was surprised at the housing market buoyancy with rising inflationary pressures and household budgets are struggling.
Borrowing costs are starting to increase
Mr Gardner also highlighted that borrowing costs are also starting to increase from the all-time lows that landlords have seen in recent months.
The managing director of Accommodation for Students, Simon Thompson, said: “It should come as no surprise that the data from Paragon Bank highlights growing landlord interest in smaller towns and cities, particularly those with a thriving university since these locations tend to offer impressive yields.
“The news from Nationwide on rising house prices is also good news for landlords as portfolios rise in value and first-time buyers face having to rent for longer while they save up to buy a property.”
Mr Thompson added: “However, the real secret to enjoying a successful property investment in smaller towns and cities is to find somewhere with strong tenant demand, including demand from students wanting to rent a home, and offering quality accommodation for tenants.”
Fears over Scotland’s economy from rent reform
Meanwhile, one lettings agency boss is highlighting a potential impact on Scotland’s economy from the government’s ‘radical agenda of planned rental reforms’ that could see rent controls being brought in.
David Alexander, the chief executive of DJ Alexander, says that the policies risk stifling economic recovery with the aim of increasing legislative, regulatory and financial control over the private rental sector.
He says that the plan, called ‘A new deal for tenants’ from the Scottish government, will discourage future and existing investment from property investors and landlords.
Tenant demand grows in Scotland
The plans will be introduced as tenant demand grows in Scotland, with government records showing, for example, that the population in Edinburgh grew by 13% between 2009 and 2019.
The population increase, says City of Edinburgh Council, is down to net overseas migration which has seen 53,000 people moving to the city over that period.
The National Records of Scotland also highlight that Edinburgh’s population will grow by 6.6%, or 552,585 people by 2028.
In Scotland, the population rise is expected to be 1.6%.
Mr Alexander said: “The private rented sector has provided homes for the large migrant workforce that has come to Scotland, and particularly to Edinburgh.
“Many of these workers are unable to access social housing or to buy properties and have the choice and flexibility afforded by private renting.”
