A look at what to consider when buying-to-let in London 2014
Why should I invest in property in London?
With low savings rates and the uncertain stock market the buy-to-let market in London has become an attractive prospect for those looking to invest their money. With rising rents and improvement in mortgage deals, buyers are being tempted once more but where is the best place to buy-to-let and what should investors consider? Below we look at the city’s investment potential for the forthcoming years.
Currently investment in London is global, Foxtons predict that the capital value of the buy-to-let property in the centre of London will see growth of around 25% by 2017, whilst rents will simultaneously rise, hence the substantial worldwide interest in the capital. In the second half of 2013, BM Solutions (part of Lloyds Banking Group and one of the UK’s biggest buy-to-let lenders) recorded the average rental per month in London at £1,417, in contrast to £701 in the rest of the UK, this was a considerable increase of 10% on rental yields in comparison to the second half of 2012. Buy-to-let purchases grew across the whole country by 28% in the latter part of 2013, and property consultants CBRE predict house prices in London are set to increase by 35% over the next five years, showing the investment trend is both wise and on the rise.
Is regeneration taking place within the City?
There are currently over 2,000 housing schemes under construction or in the later planning stages in London, coupled with new transport links that are expected to provide a boost in employment, it means there will be a lot of fresh opportunities to invest. But where are these improving neighbourhoods? The City is affected by micro-markets, factors such as good or outstanding schools can impact property prices significantly or rental demand dramatically in an area. Districts that will benefit from regeneration in areas such as the arts will also see a higher demand for living space, and it is worth noting areas that are yet to realise their property price potential- those that are still awaiting crucial development, which may in turn see the value of their properties rocket as well as their rental value.
‘Homes and Property’ suggest that six inner London boroughs undergoing regeneration are worthy of investment; these are Greenwich, Hammersmith and Fulham, Southwark, Tower Hamlets, Newham, and Wandsworth, half of the 278,000 new homes, which are planned to be built in London over the next ten-years will be built in these areas.
The Major’s Homes for London strategy proposes 10 new housing zones, although the city is currently in the middle of a building boom the city is still facing a housing shortage with London’s population set to hit 9 million people by 2020. Boris Johnson’s ‘Homes for London’ strategy aims to speed up the new builds. The strategy seeks to use all available space in the city to provide much needed housing. Under the strategy ten designated ‘housing zones’ are set to be created, within these given zones planning criteria will be relaxed, with additional tax breaks to accelerate the building process allowed.
It is predicted price surges over the following three years will also be seen in what Savills refer to as “the outer prime market”, as well as the areas mentioned above, places such as Vauxhall, King’s Cross, White City, Farringdon, South Bank, Wapping, Earl’s Court, Elephant and Castle, and Clapham Old Town are all set to be wise investment moves. With improvement of infrastructure and the pull of the shorter commute these areas are set to see an increase in demand.
What should I look for when buying-to-let?
According to Ludlow Thompson smaller flats often yield higher returns than larger ones, especially in areas with high tenant demand, such as students. Rental family houses tend to do less well so it may be better avoided as an option for first-time investors in the city. When buying-to-let it is important to be aware of the low mortgage rates, if interest rates rise you need to be aware that your rental income will weather the storm. Often wise investment is made in areas that will not ‘go out of fashion’, when buying-to-let it is important to ask the following questions:
-Is there a predicted rise in property prices expected in the area over the next few years?
-Are the properties affordable at the moment?
-Are there potential future investment opportunities in the area?
If the answer is affirmative for all three it may be just the area to consider a buy-to-let in they city.