Recent data from Paragon Bank reveals a significant decline in buy-to-let investments in Southern England, attributed to the impact of the Stamp Duty surcharge introduced in 2016. This downward trend reflects broader shifts within the UK’s property investment landscape.
Shifting Dynamics in Property Investment
The proportion of buy-to-let properties purchased with a mortgage in Southern England, encompassing the South East, Greater London, and the South West, has seen a marked decrease. Only 35% of such investments were made in these regions during 2023, down from 39% in 2022 and a peak of 52% in 2015, just before the surcharge was implemented. This ongoing decline highlights how the additional costs have cooled investor enthusiasm in areas known for high property prices.
In more detail, London experienced a drop from 19% of the UK’s total mortgaged buy-to-let properties in 2015 to just 12% in 2023. Similarly, the South East and the South West have seen their shares decline from 24% to 17% and 9% to 6%, respectively, over the same period.
Regional Growth and Market Adaptations
Conversely, the Northern regions of the UK have witnessed growth in buy-to-let acquisitions. The North West saw its share increase from 9% in 2015 to 14% in 2023, while Yorkshire & Humber’s share rose from 6% to 10%. These areas have become more attractive to investors due to more favorable pricing relative to the South.
Richard Rowntree, Managing Director of Mortgages at Paragon Bank, commented on the trend: “The introduction of the Stamp Duty surcharge disproportionately impacted those markets with above-average house prices in the south of England. For example, compared to 2015, the number of homes purchased with a buy-to-let mortgage was 70% lower last year, and a greater number of buy-to-let homes were purchased in the North West than in London during three of the past five years.”
The Future of the Private Rental Sector
Looking ahead, Rowntree highlighted the growing demand for rental properties, particularly in urban and high-cost areas like London, driven by demographic changes and a transient population. “With the population forecast to increase by 9.9% – or by 6.6 million people – by 2036, demand for rental property is only going to be stronger,” he stated.
He added, “We are seeing the Private Rental Sector utilised by a broader range of people than ever before, and those who want or need to rent a home should expect to be able to choose from a range of fairly priced, decent quality rental homes. Unless supply is boosted to meet forecast growth in demand, rents will only grow higher in markets with extreme supply/demand imbalances.”
The findings point to a need for strategic adjustments in the property market to ensure a balanced supply and affordability in the face of evolving economic and demographic pressures.
