Hamptons monthly letting index for March 2022 shows that the appetite to invest in property is on the rise again as the share of homes bought by landlords across Great Britain rose from 12.0% in Q1 2021 to 13.9% in Q1 2022.

This year’s figure marked the highest proportion recorded in the first quarter of any year since 2016 when investors rushed to beat the 3% stamp duty surcharge on second homes that was introduced in April 2016.

Overall, investors bought 42,980 homes across Great Britain during the first three months of this year, equating to £8.5bn worth of property – nearly twice the figure (£4.6bn) recorded pre-Covid in Q1 2019.

The increase in buy-to-let purchases may help reverse the decline of the private rented sector which shrunk from a peak of 5.3m homes in 2017 to 5.0m in 2021.

For the first time since 2016, investors bought more properties than they sold.

The share of homes sold by investors fell from 14% in 2021 to just 10% in Q1 2022, the lowest proportion in 10 years. This meant that there was a net gain of 13,480 rental properties in Great Britain in Q1 2022, compared to a 7,640 net loss in Q1 2021.

Investors are increasingly looking to the highest yielding areas of the country as a way to maximise their returns and hedge against inflation. So far this year 71% of investors bought in the 50% highest yielding areas of the country, up from 57% a decade ago.

It’s also one of the reasons why nearly three quarters (73%) of London-based landlords bought their buy-to-lets outside the capital this year, where yields tend to be higher, up from less than a quarter (24%) a decade ago.

The North East is the buy-to-let capital of Great Britain, where investors purchased 27.7% of homes sold in the first three months of this year, more than twice the share bought by first-time buyers (12%).

It’s also the region that saw the biggest year-on-year rise in buy-to-let purchases. This may be unsurprising given that it offers the highest gross yields in the country, averaging 9.0% compared to 6.5% across England & Wales.

Middlesbrough topped the local authority list of buy-to-let hotspots – 58% of homes sold in the area over the last six months were purchased by an investor. With an average gross yield of 8.9%, it’s the 13th highest yielding local authority in England and Wales. While Northern areas dominate the buy-to-let purchase list, six Southern areas made it into the top 15, including London’s most affordable borough, Barking and Dagenham.

However, a lack of stock available to buy has meant that investors are increasingly having to pay over the asking price. While landlords are known to negotiate hard, competition from other buyers has meant that so far this year 40% of investors have had to pay over the asking price for their new buy-to-let. For the first time since our records began, the average investor is paying over 100% of the asking price for a buy-to-let in England & Wales.

Last month, the average cost of a new let in Great Britain rose to £1,115 pcm, up 9.1% from its 2021 low of £1,022 pcm in March last year.

While this represented a rise in rental growth after six months of cooling, Hamptons expectsit to slow again in the coming months given how quickly rents picked up pace from April onwards last year.

Rents in Inner London saw the strongest growth as they continued their recovery. Even so, at an average of £2,571 pcm, up 21.3% year-on-year, the average home in Inner London costs £99 or 3.7% less than it did in March 2019. Outside London, the South West recorded the strongest rental growth, at 14.9%.

Aneisha Beveridge, Head of Research at Hamptons, commented:

“Tax and regulatory changes have weighed heavily on the buy-to-let sector over the last five years causing more landlords to sell up at a time when fewer new entrants were looking to buy.

“As a result, there are around 300k fewer privately rented homes in Great Britain today than at the peak of the sector in 2017. While we expect investors to continue purchasing at around the same rate over the course of 2022, it’s unlikely to be enough to make up for the full loss of rental homes during the last five years.

“A lack of rental homes is one of the reasons why rents have been rising at such pace over the last year. March set a new record for rental growth as rents bounced back from 2021 lockdown lows last March.

“But as these new buy-to-let purchases begin to feed into the lettings market over the coming months, we expect to see rental growth cool, particularly as the cost of living crisis weighs on affordability too.”