Wanting a buy-to-let investment? Avoid prime London at all costs

Wanting a buy-to-let investment? Avoid prime London at all costs

You shouldn’t be looking at the London property markets if you want to make a new buy-to-let investment in the coming years. Here’s why.

Everybody knows about the London housing market. Prime property in the UK capital has been the purchase of choice for the world’s rich and famous for the past two or three years.

During this time, buy-to-let investment has been growing in the public consciousness. Yet, new investors should not confuse the two market shifts, as buy-to-let investment criteria in London no longer stacks up.

Low yields

Even a causal market observer knows that property values in areas such as Kensington, Chelsea, Belgravia have exhibited astonishing growth, easily recording double-digit capital gains annually since 2012.

However, London’s appreciation is very much a bubble and when it bursts – in the City of Westminster, where the average property is worth £1,382,965, prices fell 5.2% in March alone – investors will be relying on yields to maximise their return on investment.

The high asking prices in the capital mean that currently yields are much lower than in buy-to-let hotspots such as Southampton, Manchester and Glasgow.

“The residential investment focus is likely to shift to the regional cities where, in comparison to London, the cost of entry is lower while both income yields and the capacity for medium term price growth are higher,” said Lucian Cook, Head of Residential Research at independent property consultancy Savills.

Future returns

Buy-to-let is a popular investment as it offers a much higher rate of return than standard savings accounts and, as it is based on a bricks and mortar asset, provides more reassurance than stocks and shares for many people.

As long as yields continue to outpace inflation and savings rates, buy-to-let will be a popular investment and London has recorded some of the highest rental rise in recent years. However, this is starting to change. According to Homelet, UK rental prices for the three months to April rose by an average of 10%, while London only exhibited growth of 7.5%.

Homelet stated: “What this tells us is that the private rental market is experiencing demand nationwide and that it is not simply a London phenomenon that increasing numbers of people are requiring privately rented property.”

Unsustainable demand

Nearly two-thirds of existing landlords stress the most important factor in buy-to-let performance is finding good long-term tenants – no property investment can generate any kind of returns if nobody is willing to pay the rent.

Rents in London are in danger of pricing too many people out of the market and leaving investors burdened with prolonged void periods. As far back as 2013, figures revealed the typical London family spent up to 59% of their combined income on rent.

pensions 2015 buy-to-let

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