Recently featured in The Times, Liam Monaghan discusses whether it is still worth having a buy to let in central London.
There has been much talk about landlords selling their rental properties as they struggle to make a decent profit in the face of high interest rates and a tougher regulatory environment.
However, we think they might be quitting too soon because there are still great reasons to invest in a property in London.
As a leading global city, London attracts students and professionals from across the world, creating a lucrative tenant market and a regular source of income for property investors.
Consider areas that offer both capital growth potential as well as growing rental yields. For those looking for attractive discounts and a strong rental market, prime central London prices for flats stand on average 8 per cent below peak pricing, and some areas have up to 11.2 per cent discounts.
Home to some of the world’s leading universities, high-net-worth overseas students look in inner postcodes for small, centrally located flats close to their university. When it comes to a London buy-to-let, the smaller the better to achieve higher rental yields.
Rental yields for smaller flats are touching 5 per cent for the first time since the 1990s, according to our in-house analysis, thanks to the return of international students to the market and a reduction in the levels of stock.
Therefore, taking into account where values are, the growth potential and the demand in the rental market, there are good investment opportunities to be had in London.
London property on average changes hands every 27 years, while in inner postcodes it is more than double that at 73 years. This means investors can buy unmodernised properties. With a simple refurbishment they can see an instant capital uplift of about 6 per cent on their investment.
Providing that a lower level of debt is secured, there is the option to buy with a 50 per cent loan-to-value mortgage and undertake a renovation so your investment “washes its face”.
Investors should adopt a long-term view when it comes to investing and not be influenced by short-term market movements.
Inner London may not have seen the huge price increases that other parts of England and Wales had during the pandemic, but it is now starting to outperform the rest of the country and this is likely to continue.
Forecasters are predicting upwards of 15 per cent price growth in inner London over the coming four years, compared to 11 per cent in Greater London and much less in the wider UK.
These returns can match any government gilt or bank deposit. It may not match a highly risked stock portfolio, but adding bricks and mortar to your portfolio as an alternative asset class is a good choice.
London property is also attractive on a tax level for investors. It is one of the few cities not to charge a holding tax and its tax on acquisitions is often lower than other international hubs such as Singapore, Hong Kong, Sydney, Cape Town and Madrid.
London has 32 boroughs, all with differing behaviours, market fluctuations and price values to choose from. And with its plethora of employment opportunities, its global connectivity and culture, and its GMT time zone allowing C-suites to run an international business, London will always be viewed as a destination of choice.
Liam Monaghan is the managing director at the buying agency London Central Portfolio
