Why Buy to Let investments are growing in popularity

February 24, 2023

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Article Summary

Buy-to-let
  • In property investment, buy to let is the method of investing in property with the intention of renting it out to tenants, instead of for the investor to live in.

  • In December, the UK average rent was £1,118 which is 11.5% or £120 higher than it was in December 2021. The two UK cities that showed the largest increase in average rent were London and Manchester.

  • Manchester ended the year on an average rent of £977pcm, with an increase of 14.8% in the year, totalling a £126 increase.

What is Buy to let?

In property investment, buy to let is the method of investing in property with the intention of renting it out to tenants, instead of for the investor to live in.

What is Build to rent?

Build to rent on the other hand is a similar concept, but it is built and owned by large companies, who rent units to tenants in contrast to private BTL units owned by landlords.

Increased Build to rent schemes highlights rental demand

This method of investment has increased in popularity in the past few months, resulting in an overwhelming demand for rental properties in 2023. This in turn is driving investment in the build-to-rent sector, as the demand for property in the country continues to grow.

The exponentially growing demand for rental properties is resulting in significant financial growth build-to-rent (BTR) sector particularly, which reached £4.3bn in 2022, making it one of the most in-demand UK real estate sectors according to Savills’ Investor Sentiment Survey. It was also identified that yields had proven resilient in BTR in relation to other real estate asset classes.

Head of multi-family development in the operational capital markets division at Savills, Polly Simpson, spoke to Property Week, saying: “A structural and cumulative undersupply of housing and the resultant growing demand for rental properties continues to support a significant investment case for BTR.”

Soaring Rental Demand

It is expected that rents will continue to increase, though at a slower rate in 2023. Housing supply is expected to remain tight due to lower levels of new investment by landlords. Due to the lack of available properties and the steady-growing amount of investors coming back to the market, it is expected for rental growth to slow down in 2023 towards a national average of 5%.

Despite the initial worry from some investors to get involved in the property market again, a lot have returned to the market since the turn of the year, as mortgage rates dropped drastically. The opportunity for investors to purchase off-plan properties in a property market that is getting increasingly saturated, along with the growing rental demand has seemed too good of a chance to miss out on for some.

One of NPG’s two managing directors, Tim Coen, revealed that January 2022 was one of the company’s best on record:

“We had a record month in January…Our investor transactions were double what they were in December and double what they were the previous January.”

“Rents are going through the roof,” Coen adds.

“We are seeing rises of 15% to 25% on renewals, it is just crazy. The rental market is still absolutely on fire.”

The rental rate increases in 2022 reached the highest levels seen in the past decade. In December, the UK average rent was £1,118 which is 11.5% or £120 higher than it was in December 2021. The two UK cities that showed the largest increase in average rent were London and Manchester:

London finished 2022 on an average monthly rent of £1,976, with an annual increase of 16.1%, or £274 to be exact.

Manchester ended the year on an average of £977pcm, with an increase of 14.8% in the year, totalling £126.

– For comparison, Leeds was 14th in the list, with an average rent of £917 per month, increasing 9.0%, or £76 since 2021.

Leeds still saw a significant rise in average rent prices despite failing to reach the top 10 of highest rental growth cities.

Our Manchester Buy to let opportunity

According to the Zoopla Rental index, rental rates in inner Manchester, Trafford and Salford are growing at the fastest rate in the North of England. In all three areas, the average new rent is now £140 higher than a year ago.

NPG have a development in this highly desirable area: The Bailey.

The Bailey is an upcoming brand-new development comprised of 104 apartment units that are situated next to St George’s Park, with views of Deansgate. It is in the highly sought after M15 postcode, just down the road from the most expensive real estate in Manchester. 

Located between Trafford and Manchester City Centre, The Bailey’s location is extremely attractive to potential tenants. Deansgate train station is also a 15-minute walk away, and in under 5 minutes, residents can reach the nearest bus stop, with these conveniently located transport links providing access to the lively city of Manchester.

The Bailey is located in an area we have identified as a hotspot, just minutes from the city centre. In a city that has an extreme shortage of housing for its ever-growing demand, The Bailey is a perfect option for a buy-to-let investment, particularly short-term lets, with serviced let net yields up to 6.8%.

With Manchester’s population increasing by almost 50,000 in the past decade to 552,000 from 503,000 in 2011, there is no signs of the city’s growth and demand for property to slow down.

Only 0.4% of developments in Manchester city centre are permitted to run short-term lets, representing a truly unique investment opportunity, with short term lets also expected to have a rent growth per annum of 20%.

Conclusion

Based on the Zoopla rental index, Manchester looks to be the second most desirable city to live in the UK, and one of the fastest growing. These factors contribute to the ever-growing rental rate in the city and area. With the demand continuing to grow and the housing supply struggling to keep up, now is the time to pursue a Manchester investment and achieve high rental yields and capital appreciation before property becomes harder to acquire, due to availability or price.

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Explore our property in Manchester

The Bailey

From £249,950

Yield: 13.5%
   In Construction
   Est. Q4 2024
   Lease Length: 250 Years

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