With house prices in London at such a high level, more and more people are resorting to renting, which in turn is pushing up rental incomes for landlords as it increases demand for properties. In some parts of the capital more than a third of privately owned homes are rented, with many of them purchased under buy to let conditions. This strategy is becoming increasingly popular for investors because it allows them to earn a monthly rental income while they wait for prices to rise and deliver a better return on their original investment.
Buy to let can be a very lucrative tactic but investors need to do their homework if they want to stand the best chance of returns. Firstly, they need to decide on the location they want. This is the most important decision because it will have an impact on many other factors, from the audience they should be targeting to the potential for tenancies. It is also sensible to choose an area where rental incomes are rising faster than house prices because the yield will be better.
There are several buy to let hotspots in London but investors need to be careful, particularly with the high property prices and the need for a large deposit to secure a mortgage. Newham is currently the most popular location, with over 32% of the housing stock privately rented. The area delivers a rental yield of around 5.2% with average house prices at £292,306 and average annual rent of £15,192. Southwark is another good popular area, offering a yield only marginally lower than Newham of 5.18%. The difference between the two is that property prices in Southwark are almost double, averaging at £551,962.
In some prime markets the rising house prices are making it tricky for landlords. Kensington is a particularly problematic market with yields of just 2.8% even with the highest rental prices in the capital. The reason for this is because the price of the properties themselves is so high that it is difficult to make an attractive rental yield. Many property owners need to look at capital appreciation rather than this kind of return.
If you are looking at buy to let in London you may wish to seek advice from an experienced property investment company. They will provide more information about the conditions and the best areas to target. We specialise in all aspects of property investments, purchases, lettings and council leasing in Newham and throughout all London boroughs, and are well equipped to help you make a success of your buy to let ventures.