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London: buy-to-let hotspot or not?

Rents are down in the capital – should you still invest?

London: buy-to-let hotspot or not?

Rents on newly let London properties have fallen for the third month in a row, despite the number of rental properties dropping by a whopping 21%.

While rents on recently let properties outside London have risen 2% year-on-year, rents in the capital are down 0.8%. In fact, London is the only part of the UK to have seen rents fall, according to the Hamptons International Monthly Lettings Index.

But if you’ve been considering investing in a London buy-to-let, does this mean you should put your cash elsewhere?


What’s going on with London buy-to-let?

While people renting new properties in the capital are paying less than they would have done in 2017, rents on renewed tenancies are up 3.2% year-on-year. The number of London households renewing an existing contract has also increased, by 3.7%.

Aneisha Beveridge, analyst at Hamptons International, explains: ‘With affordability stretched and less choice available on the open market, more tenants are choosing to stay put.

‘And with landlord yields under pressure from high property prices and tax changes, fewer landlords want to run the risk of looking for a new tenant and suffering void periods.’

It’s worth noting that the picture is slightly different depending on where in London the property is: while new lets in outer London are commanding 1.1% less rent than last year, rents in inner London are up – albeit only by 0.4%.

What’s happening nationally?

The average rent in Britain now stands at £975 per calendar month (pcm).

Wales and the Midlands have seen the strongest annual growth, with rents rising by 4.4% and 3.3% respectively.

The table below reveals average rents and year-on-year (YOY) increases across the country, both for newly let properties and those where the tenants are renewing their contracts.

Region Average rent on a new tenancy (pcm) New tenancy YOY rental growth Average rent on a renewed tenancy (pcm) Renewed tenancy YOY rental growth
Greater London £1,702 -0.8% £1,765 3.2%
– Inner London £2,609 0.4% £2,705 0.8%
– Outer London £1,530 -1.1% £1,587 4.0%
East of England £957 1.8% £914 3.5%
South East England £1,052 1.4% £1,014 2.8%
South West England £807 1.6% £778 2.4%
Midlands £689 3.3% £656 2.4%
North £648 1.7% £607 2.3%
Wales £683 4.4% £631 2.4%
Scotland £658 0.4% £631 2.4%
Great Britain £975 1.0% £958 2.8%
Great Britain (excluding London) £789 2.0% £750 2.6%

Source: Hamptons International

Is rent the most important factor when deciding where to invest?

While rental income will obviously be an important element in your location decision, there are several other factors to factor in too:

  • Yield: the yield is the rental income as a percentage of your buying costs. Click to discover the areas with the highest yields.
  • Void periods: if you don’t have tenants in your property but you do have a mortgage to pay, you’ll be losing money. Find out the areas with the lowest average void periods.
  • Capital growth: ideally you want to invest somewhere where the value of the property is likely to grow. The map in our house prices guide compares value change over the last year with the three years prior, to indicate whether yours is an area on the up. Of course, past performance is no guarantee of future mind.
  • Logistics: if you intend to manage the property yourself rather than using a letting agent, it’ll need to be near where you live.

Why are there fewer homes for rent?

The number of rental properties in London has fallen by a massive 21% in the last year, while across Britain the drop has been 6%. In fact, data from the Ministry of Housing, Communities and Local Government (MHCLG) shows that landlords are selling off their buy-to-let properties at a rate of 4,000 per month.

This is due to a number of factors: the buy-to-let stamp duty surcharge, introduced in April 2016, has put some potential investors off purchasing new buy-to-let properties altogether.

Many landlords have also started exiting the sector due to cuts to mortgage interest tax relief and tighter timelines on paying capital gains tax after selling a property. New rules on energy efficiency for buy-to-let properties, HMO licensing and general landlord licensing in some areas have also taken their toll on profits.

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