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Urban BTL bounces back

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During 2021, buy-to-let purchases in urban postcodes grew substantially, especially in secondary towns and cities, highlighting how people still want to live amongst the hustle and bustle.

As has been well documented, buy-to-let activity was up strongly last year, but a particular quirk of 2021 was the increase in purchase activity in urban centres.

Many predicted that a fallout of the pandemic would be a surge in demand for homes in suburban or rural areas. Whilst that was also certainly the case, it was in addition to - rather than at the expense of - activity in urban areas.

Despite the challenges of the pandemic, people clearly still want city life and all the cultural and economic benefits it offers.

Our own lending activity showed a 100% increase in buy-to-let purchases in urban postcodes compared to 2020, but what was striking was the strongest growth was not recorded in the UK’s major cities.

It was the secondary cities and larger towns which experienced the greatest growth during the year. Aside from Manchester and London, no other location in the top 10 growth spots would be classed as a major UK city.

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.

I think there’s a number of factors behind this trend and there appears to be one of - or a combination of - three elements that each of these locations share.

They are generally in a commutable distance to a major city, they mostly have growing universities and they have healthy local economies.

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 within closer distance to rural land or the coast. Our inhouse surveyors have reported, for example, demand for property in Bristol rocketed because of Londoners relocating to a city that mirrors elements of London living, but at a slightly slower pace.

With regards to London – which remains one of the largest buy-to-let markets in the UK – landlords are still buying but are very particular about where they are targeting.

Our figures show a 95% increase in buy-to-let completions in the capital during 2021, with landlords concentrating acquisitions in Zones 2 and 3 (up 93% and 183% respectively) as they balanced the requirement for yield, availability of property and tenant demand.

Zone 1 was generally too expensive to generate an adequate yield, whilst Zone 4 is just 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, whilst rental property supply is generally constrained.

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, whilst across the board tenant demand is 76% above the Zoopla five-year average, whilst property supply is 39% below the five-year average.

Pressure on stock in cities is likely to continue for some time to come. 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’s important it recognises this delicate balance.


Richard Rowntree

Richard Rowntree
Managing Director for Mortgages


This article was published in Mortgage Strategy.