October 5, 2021
Is property in London a good investment?
It’s one of the most iconic, famous and photographed cities in the world. It’s a world-leader in culture, business, finance and increasingly cuisine, as well as having a fascinating history.
But, despite London’s prowess as a global city, does it score highly when it comes to being a great investment destination?
Here, we take a closer look.
Consistent, enduring demand
It has long been seen as a rite of passage for people to rent in the bright lights of London in their youth before heading back out to the sticks as they get older and start to have families of their own.
It’s for this reason that London is home to the UK’s largest rental population. It’s comfortably dwarfing any other city in its size and breadth. Young professionals and students make up a large percentage of these renters. It’s also become increasingly popular among families and older renters who want the buzz and culture offered on their doorstep.
The pandemic undeniably had an impact on the capital’s rental market. Students and young professionals returned to their family homes, deprived of all the reasons why living in London is so great. However, this trend has started to reverse since restrictions have eased, universities have reopened, and people have been encouraged back to the office.
If anything, the excitement generated by living in London is greater than ever because of the long periods of time where people weren’t able to enjoy it to its fullest. The pubs, restaurants, museums, cinemas, club and green spaces that the capital is so famed for have been back to full capacity.
London is home to a huge range of rental hotspots, which makes it an investor’s dream. Demand, now we’re back to more normal times, is pretty much guaranteed in the capital. A mixture of young professionals, students and those from abroad who are typically far more likely to rent, battle it out for rooms in places like Balham, Brixton and Bethnal Green.
The consistent demand helps very much when it comes to keeping void periods at bay. In fact, data from Goodlord earlier this year found that the average void period in Greater London during February 2021 was just 20 days. This is lower than the national average and all but three English regions. This was during the height of the third national lockdown. Restrictions were at some of their most stringent. So it seems highly likely this number has improved even more since then.
It’s certainly the case that London remains a top investment hotspot. This is despite the higher initial buy-in costs in the capital. It remains so due to low supply and very high demand, leading to shorter void periods and higher average rental prices.
London’s rental market also performs strongly compared to other European cities. A rent index from HousingAnywhere revealed that during Q3 2020, London had the second highest average rent for an apartment in Europe at €1,751. Second only to Paris and beating cities such as Barcelona, Munich and Rome.
A strong recovery from the pandemic
While rental yields tend to be more squeezed in London because of the higher initial buy-in costs, capital gains can be much more significant because of the capital’s ever-rising house prices. There are also parts of the capital where higher yields are on offer as a result of more affordable purchase prices.
Sometimes, as an investor landlord, you may want to take more of a risk on an area in the hope that it becomes a rental hotspot. And London has plenty of those on offer, especially in areas which are about to benefit from major infrastructure projects or regeneration.
London is also expected to recover stronger and more quickly from the pandemic than any other city. The capital has never just been a city to commute to for work. It is so much more than that thanks to the entertainment, events, green spaces, riverside walks and huge variety of cuisines it has on offer.
Its reputation as a rental hotbed is also bouncing back with a vengeance as students and young professionals make up for lost time.
Low supply pushes prices up
According to recent findings from Zoopla, the average rent in London currently stands at just over £1,590 per month. In the meantime, supply in the capital has shrunk by 58% in the last year.
The two things are connected, of course, with low supply typically pushing prices up year-on-year. Moving forward, there seems little prospect of the gap between supply and demand narrowing.
This puts landlords in a strong position when it comes to setting rents and having a large pool of potential tenants.
Rents have fallen in London during the pandemic. However, from a very high starting point, and the pace of decline has recently eased as the capital reopens and draws hordes of tenants back. There has also been some evidence that London rents are on the rise again as part of the Covid bounce-back.
The importance of property type
As we outlined in our buy-to-let investment guide 2021, one of the most important considerations when investing in a rental home is what type of property it is.
There is, after all, little point in investing your money into a home that has absolutely no appeal to tenants or future buyers. You should be clear on whether you want a leasehold or freehold, a Victorian, and how many bedrooms the home includes. The more bedrooms you have, the more maintenance and repairs this could require. But on the other hand you will receive a higher monthly rental income.
You should also factor in changing priorities. Space, and particularly garden space, have become way more crucial to tenants. Just as superfast broadband as many still work from home at least some of the time.
Transport links are also likely to be back in vogue more compared to the worst days of the pandemic. Easy access to amenities, local schools, parks and restaurants has enduring appeal.
There is a lot consider when investing in a property. So it’s crucial that you work closely with an experienced lettings professional to help you through the journey.
Here at Atkinson McLeod, we can help you to get the most from your rental properties. If you have any questions about letting a home in the London area, we’re here to help.
To find out more about our services and current operations, please get in touch with our expert team today. You can find out how much your home could be worth on the current market by requesting a free and instant online valuation here.