The London buy-to-let market has been buffeted by strong financial and regulatory winds in recent months.
This has included less generous tax relief on mortgage interest payments, increased Stamp Duty for buy-to-let property purchasers, stricter mortgage lending rules and, soon, a city-wide landlord licensing scheme.
But despite these challenges, London remains one of the favourite places for investors to put their cash into residential property
The value of homes and rents in the capital have increased over the past 20 years by staggering amounts, driven by London’s booming economy and a fast-expanding population.
According to government figures, average house prices in London have risen five-fold during the past twenty years from £80,000 in 1996 to nearly £500,000 today. Rents have been rising too, increasing from £385 a month in 1996 to £1,564 in 2017, and are currently twice the national average.And the demographics of London are changing too, creating huge demand for rented property.
Research by PwC last year revealed that by 2025, 60% of the capital’s residents will rent their home; fewer and fewer people have bought their own homes in London since 2000.
But it’s a big place. There are 33 boroughs in London and hundreds of micro markets each with their own rental dynamics, supply and demand. So where to buy-to-let in London?
For landlords who are considering an investment into London property, here is our first episode of our guide to London’s private rented market.
Areas to invest in London
Many areas of London are regenerating fast. This is down to two key factors – affluent young professionals looking for better value outside of London’s expensive prime areas. This in turn prompts new investment in these areas, while often large house builders take advantage of cheap land in these areas, which also helps jump-start the local economy.
But whatever the reason, the signs of ‘gentrification’ are usually obvious – branded coffee chains, pop-up restaurants, fashionable bike shops and pubs being converted into gastro eateries.
The trick for landlords is to try and pin down these areas before rents and house prices start catching up with the neighbouring prime property areas. Here’s a few worth considering.
- Average price for an apartment: £532,640
- Average rent for a two-bedroom apartment: £1,646
- Average price for an apartment: £373,584
- Average rent for a two-bedroom apartment: £1,286
- Average price for an apartment: £583,300
- Average rent for a two-bedroom apartment: £1,646
- Average price for an apartment: £304, 578
- Average rent for a two-bedroom apartment: £1,267
- Average price for an apartment: £594,409
- Average monthly rent for a two-bedroom apartment: £1,922
- Average price for an apartment: £399,098
- Average rent for a two-bedroom apartment: £1,415
- Average price for an apartment: £320,974
- Average rent for a two-bedroom apartment: £1,249
- Average price for an apartment: £382,125
- Average rent for a two-bedroom apartment: £1,418
If you look at a buy-to-let property in purely financial terms and calculate yearly rental as a percentage of asking prices to get the gross yield – i.e. income before all costs including tax – then several hotspots emerge.
For landlords, these are usually neighborhoods further out of London near train stations where rental demand is strong, but house prices remain relatively low compared to surrounding areas.
Here are a few to check out. These figures are based on rents and prices for two-bedroom apartments in each area.
- Feltham – 5.16%
- Wembley – 5%
- Ilford – 5.02%
- Barking & Dagenham – 5.78%
- Rainham – 4.86%
- Romford – 4.94%
- Hayes – 5.13%
- Coulsdon – 4.85%
- Mitcham – 4.99%
Main student areas
A recent survey by mortgage lender Landbay discovered that many students who used to live as near to their university campus as possible are now being forced to consider much more far flung London postcodes in order to keep their costs down.
The company reckons areas in London’s outer suburbs are becoming increasingly popular with students, and that these are where landlords should consider investing their money. Example London Boroughs it cites include Bexley, Sutton, Havering, Croydon, Bromley and Hillingdon, all of which feature monthly rents under £1,200 per month per property.
London’s prime central districts are an investment market most suited to cash rich landlords who are prepared to play the long game for the moment.
Property values in places such as Knightsbridge, Mayfair, Belgravia, Notting Hill, Kensington and Westminster have experienced price falls of up to 20% over the past year, official data shows, and rents are softening too.
For example, in Westminster rents have dropped by 3.6% year-on-year recently, and by 8.7% in Islington.
These rental reductions are largely down to the Stamp Duty changes last year, which saw
buy-to- let landlords rush to buy properties before the higher Stamp Duty deadline was
introduced in April that year.
This has caused an oversupply of properties within these prime markets, and dragged down rents. Normal market conditions may resume once this imbalance between supply and demand has been absorbed by the market, though.
New build hotspots
Many buy-to-let investors like the familiarity and quality of new build apartments in London, partly because there is strong demand for them from many tenants, particularly overseas students and professionals.
Planning rules within London mean new-build development are often concentrated in areas that local authorities are looking to regenerate or improve by allowing large-scale development.
Here are a few of the key areas currently awash with cranes and builders constructing.
Elephant & Castle
This area has been earmarked for new-build redevelopment for over a decade now and several developments have been completed, and more are on the way including the huge Elephant Park estate. It’s a redevelopment of a former council estate where the latest phase, West Park, offers new homes from £500,000. Or have a look at Harvard Gardens, a new development south east of Elephant & Castle in Walworth.
If you haven’t been to see a football match or concert at Wembley for a while, then you will hardly recognise the area, which has seen a new-homes building boom around the new Wembley Stadium site.
Known as Wembley Park, the first phase is complete but 1,200 more apartments are being built by developer Quintain close to the stadium, including 500 apartments at Emerald Gardens and then 211 apartments within the next phase, Alto, which has just started construction.
The area around the former Olympic site in east London is still a hotspot of new homes developments five years after the games finished. This includes sites being developed by the Manhattan Loft Corporation, which is building a £300m tower with three sky gardens and a hotel, and Strand East, a £700m mixed-used development to include 1,200 homes.
The Royal Docks is the islet of former docks to the east of London that includes City Airport as well as several new residential areas and developments. The area was once the largest docks areas in the world and continued operations until the 1980s. Its distance from central London means this former industrial area has developed slower than other river areas of London, but it’s now all taking off, particularly so because Crossrail is about to arrive. Nine Elms A very large area of formerly commercial Thames riverside between Lambeth and Chelsea bridges is being redeveloped on a grand scale including, most famously, the former Battersea Power Station.
As well as new homes for 35,000 people, Nine Elms will include a new diplomatic quarter for London – the US embassy is moving there soon – as well as several new residential skyscrapers and the £9 billion redevelopment of the old power station.
This southern suburb of London suffered from under investment for many decades but its central area, particularly around the East Croydon station, is now a new-homes hotspot. It’s all part of a £3 billion facelift for the area, which is to include 4,000 new homes, a £1.4 billion Westfield Shopping Centre and a new school. On Cherry Orchard Row developer Redrow is putting up Morello, a block of 297 one, two and three-bedroom apartments.
We can help
This article reveals where landlords should be looking if they want to invest in the London buy-to-let market, despite the higher costs of property investment that lenders and politicians have added to the market.
Howsy is ideally placed to offer a way to offset these costs. Our flexible, affordable way to manage buy-to-let properties will save you from the hassle of having to directly manage your buy-to-lets and from paying extortionary fees to a traditional lettings agent for property management. Find out more about Howsy.