Investors are buying second homes in the North East and North West at an increased rate compared to the rest of England - signalling buy-to-let landlords targeting those regions in search of better yields.
The research comes from London lettings and estate agent Benham and Reeves which analysed the volume of additional dwellings purchased between the 2020-21 and 2021-22 financial years across England. Across the country as a whole 19.5% more second homes were bought, with transactions rising from 230,900 between April 2020 and April 2021 to 275,900 between April 2021 and April 2022 - as the country recovered from the pandemic.
Between the two financial years purchases of additional dwellings soared by 27% in the North East, from 11,500 to 15,000. Meanwhile they rose by 26 per cent in the North West, from 34,400 in 2020-21 to 41,900 in 2021-22.
Both areas are known for having stronger rental yields, in part due to relatively affordable house prices in cities like Sunderland, as well as growing economies in places like Liverpool and Manchester.
Those regions also contain areas of strong natural beauty, which could also attract people who want to buy a holiday home, like the Lake District in the North West. Within the North West both Manchester and Liverpool saw a sizable bump in activity for additional homes. The former saw 5,100 purchases in 2021-22, up from 3,300 in 2020-21, a 39% increase. Meanwhile Liverpool experienced a 37% increase, with purchases rising from 2,900 in 2020-21 to 3,700 in 2021-22.
Within the North East the affordable towns of Hartlepool and Middlesbrough saw the biggest increases in activity, where additional purchases soared by 31%. While every region saw an influx of activity over the period, the lowest growth area was the East Midlands, where 16.9% more second properties were purchased, from 19,500 in 2020-21 to 22,800 in 2021-22.
Other regions with lower growth were the East of England and the South West, at 17.4 and 18.2% respectively. While second home purchases were already strong in the South East and London, that trend continued.
Aside from the North West, the most purchases took place in England in the South East, at 41,900, followed by London, at 41,800.
While neither of these regions are likely to offer the strongest rental yields, they are historically known for attracting significant house price growth. Some investors also prefer to buy second properties closer to where they live, regardless of the yield, rather than attempting to manage a property a long drive or train ride away.
Director of Benham and Reeves, Marc von Grundherr, states “making strong returns as a second home investor is no longer a guarantee, so it appears that more are prepared to look further afield by purchasing homes in the regions where yields are stronger due to the lower initial cost of purchasing a property. Manchester and Liverpool have been popular for some time, though growing interest in North Eastern towns like Hartlepool and Middlesbrough has been aided by low house prices. For those who are looking to purchase an additional dwelling to live in, rather than as an investment, the beautiful nature of the landscapes in the North of England also act as a big pull to those that can afford to buy a second home. Elsewhere there’s consistent activity in the South East and London, which tend to attract strong capital growth and so are always likely to have a steady flow of activity, even in more subdued times.”
Legislation uncertainty causing chaos in PRS, claims industry body
Uncertainty in legislation is causing high rents in the private rented sector, according to a new report. Propertymark’s Housing Insight Report, reveals 44% of letting agents have seen rents rise in October.
One agent told the report that the Renters (Reform) Bill has caused landlords to become somewhat cautious.
Nathan Emerson, chief executive of Propertymark, said "whilst there has been a slight dip, demand remains high. In the letting sector, the number of new prospective tenants registered per member branch has decreased month on month since July 2023. However, demand remains high with around nine prospective tenant registrations per available property. This continues to have an impact on rent levels. As does the continued legislative uncertainty in each of the home nations, which clearly weighs upon landlord investment decision-making. For example, this month, 72% of the properties that left our agent’s management were due to the property being sold. It is time for UK legislators to consider more carrot and less stick.”
Toby Martin, ARLA Propertymark regional executive, for the West Country weighed in on the evolving landscape shaped by the Renters (Reform) Bill. He said “now that the Bill is finally gathering momentum, it has been interesting to gauge landlords’ reactions to the proposals. The general response has been one of cautious apathy, with most landlords conceding that little will change for those committed to offering good quality, long term accommodation. The recent amendments recognising the student tenancy cycle have been particularly welcome.”
In the residential sales sector, high interest rates have caused uncertainty for first-time buyers. Mr Emerson said:“in the residential sales sector, interest rates remain high, causing first time buyers and movers to think twice. This is evidenced by the number of prospective buyers registering at our member branches falling and the number of market appraisals being undertaken trending downwards."
According to the report, there has been a 19% reduction in new properties coming to the market. The report also revealed, a 13% decrease in the number of potential homebuyers registered.
PRS needs stable leadership, says NRLA chief
The private rented sector (PRS) deserves more consistent and effective leadership from the government, rather than being a political pawn, says the chief executive of the National Residential Landlords Association (NRLA), Ben Beadle. He made the claim during an interview for the latest episode of The Home Stretch podcast, hosted by Iain McKenzie, the chief executive of The Guild of Property Professionals.
Mr Beadle said “I attended both party conferences and there is no question in my mind that housing is going to be one of the key battlegrounds for the election. The Conservatives said very little about housing at their conference, other than planning references. We had a fringe event that Rachel Maclean (the former Housing Minister) attended, and it was the only fringe event that was focused on the private rental sector. With Labour there was far more discussion around rented housing, which they see as a vote winner. However, if Labour comes to power, Section 21 is likely to be one of the first things they would abolish, whereas the Conservatives acknowledge that there is a balance to be struck with court reform and enhanced possession grounds for landlords before this can happen. There seems to be an interesting power play happening in front of us with who can do the most draconian things. Labour had a clear plan for the first 100 days, which included growing the social housing sector.
They would also want significant more investment in new homes, with a figure of around 1.5 million homes quoted. Of course, this comes with a lead time but in the meantime with the lack of housing supply, Rome is burning. These same challenges await Labour should they come to power, and what isn’t clear is precisely how they would address them. In fact, it is possible that there could be even more challenges ahead if Mr Gove does not deliver on his Renters (Reform) Bill, We would like to see more support for landlords, such as tax incentives for energy efficiency improvements and longer tenancies."
Mr McKenzie said “with the recent reshuffle and upcoming elections next year, there is an enormous amount of change on the horizon for this sector. Ben’s insight into the challenges facing the sector, and on policies that will have an impact on the private rental market in 2024, should be essential listening for property professionals within the lettings segment of the market.”