City investors grab land in rental market as buy-to-let landlords evicted

Home under construction in the UK - Andrew Matthews/PA Wire

Home under construction in the UK – Andrew Matthews/PA Wire

A “rising tide” of investors in the city is expected to replace small rental landlords who are being driven out of the market by higher interest rates, experts said.

The build-to-rent sector will double in size over the next three years, real estate consultants JLL forecast, accounting for one-fifth of all new homes built over the period.

The surge in purpose-built rental properties underwritten by large pension funds and asset managers comes just as many rental owners are being driven out of the market by soaring interest rates.

A typical homeowner with an interest-only mortgage will see their payments triple when they refinance this year, wiping out any profit on the average rental property.

Hamptons real estate agents have forecast the private rental sector will suffer a net loss of 37,480 properties this year.

Emma Rosser, associate director of living research at JLL, said: “We’re going to see a move away from small owners and that’s going to be replaced by big owners, the professionalisation of the sector.”

Institutions have invested £32.5billion in Britain’s build-to-let sector over the past decade, mostly building student accommodation and town center accommodation for young professionals.

These investors have enough cash to be protected against high borrowing costs and are expected to make up an ever-growing share of the market as smaller players sell off.

Basically, investors are now turning to building suburban homes – the bread and butter of traditional smallholders.

In 2022, only 13% of homes to be built were single-family homes. By 2025, this share will be 42%.

Ms Rosser said: ‘This growing wave of investment has gained momentum over the past decade.

Institutional investors will build 88,000 new private rental units over the next three years, JLL predicts.

The numbers are still small compared to the size of the existing rental sector, which consists of 5.5 million homes across the UK. However, the growth suggests that investors in the city will take a prominent place in the market.

The growth of city-backed rental properties and the financial firepower underpinning the sector suggests that buy-to-let landlords selling today may struggle to compete if they seek to re-enter the market in the future. ‘coming.

Ms Rosser said: “We came from a buy-to-let model where supply was really built on debt. Now he will focus on fairness. This is possible thanks to very large multi-billion pound pension funds.

“Everything points to a big change.”

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