Buy-to-let is back as rents stabilise and low prices attract landlords
BUY-TO-LET is starting to look like an attractive proposition once again, as lower house prices and a stabilising rental market result in more enticing yields. Data from LSL Property Services – the company that owns Your Move and Reeds Rains estate agencies – shows that annual returns on landlords’ investments have turned positive for the first time since the credit crunch began.
If a landlord had bought a property 12 months ago, he or she would have made, the agency reports, a modest annual return of 2.4 per cent. The last time it would have been profitable to purchase a buy-to-let property would have been July 2007. Any purchases until November 2008 would have yielded a loss on their rental property.
Rents are now stabilising again, and on the back of this, buy-to-let landlords are returning to the property market: the Council of Mortgage Lenders (CML) recently reported that buy-to-let lending rose by 10 per cent in the three months ending in September. Members of the Royal Institution of Chartered Surveyors also recently reported an increase of 2 per cent in buy-to-let clients.
While rental yields in central London are still relatively low – anywhere between 3 and 5 per cent, according to property investment specialist Stuart Law of Assetz – they still have investment value because of strong capital growth prospects. “As a rule, yields in outer London – areas like Ealing or Islington – exceed the “prime” areas, the central, more desirable postcodes. Though with prime you’re more likely to sell your home for more in the future, of course”, says Marcus Dixon, of the Savills residential research department. We take a look at our top-five areas for investment, which offer both good prospects of capital growth and proven, solid rental returns.
WAPPING
• Average sales prices for a two-bed flat (provided by Savills): £330,000
• Average monthly rents for a two-bed flat (provided by FindaProperty.com): £1,011
• Rental yield on a two-bed flat (provided by Savills): 5.9 per cent
• Price falls in last 18 months (provided by Zoopla.co.uk): -14.96 per cent
Wapping has obvious appeal to City workers, who can easily walk or catch the bus to Liverpool Street from here. It also is due to get a new Wapping station, which will be connected with the East London Line in 2010. The main disadvantage has been a distinct lack of atmosphere, which is gradually changing: a Waitrose has opened – always a good sign – and better-quality pubs and restaurants have opened in St Katharine’s Dock. However, future investors need to be aware that this area has had its problems with renting. “Wapping, like Docklands, has recently seen the biggest problems with voids periods without tenants because of the direct impact of City redundancies,” says Matthew Hobbs of Savills lettings – though this has improved dramatically. “As City sentiment has improved, rents have come back sharply, boosting yields.”
NINE ELMS, BATTERSEA
• Average sales prices for a two-bed flat (provided by Savills): £335,000
• Average monthly rent for two-bed flat (provided by FindaProperty.com): £1,062
• Rental yield for a two-bed flat (provided by Savills): 5.8 per cent
• Price falls in last 18 months (provided by Zoopla.co,uk): -9.25 per cent
Investors who are happy to take a long-term view might want to consider investing in Nine Elms, found between Vauxhall and Battersea and home to the iconic power station. Several big projects are in the early stages in this area: planning permission has recently been granted for the new US embassy, a five-mile plot that will considerably spruce up the area. As part of the planning negotiations, the US government has promised to provide a new park, either a new Tube (to be connected to the Northern Line extension) or a Crossrail stop. There is also the power station redevelopment, which – if it gets built this time (there have been lots of aborted attempts) – will see hundreds of new homes, shops and offices.
Cue some excited developers and new housing projects in the area. Savills is selling this space, a conversion of a former South Bank university building, where prices start at £185,000 for a studio flat, and £220,000 for a one-bed. “At under £500 per square foot and just 10 minutes by tube to Oxford Circus and 14 minutes to Bank, Nine Elms offers a central London location at a very good price,” says Ed Lewis, director at Savills.
PADDINGTON
• Average sales prices for a two-bed flat (provided by Savills): £749,000
• Average monthly rent for two-bed flat (provided by FindaProperty.com): £1,633
• Rental yield for a two-bed flat (provided by Savills): 3.6 per cent
• Price falls in last 18 months (provided by Zoopla.co.uk):
-12.25 per cent
Rental yields might not be high here, but Paddington is appealing because of growth in house prices expected in the mid- to long-term. The area is currently seeing massive regeneration as part of a 20-year project: Paddington Basin has already seen companies such as M&S and Orange basing their offices here, and restaurants are opening. Transport-wise, Paddington is hard to beat with the Hammersmith & City, Bakerloo, District and Circle lines all connected to the Tube station, and trains taking you to Heathrow, Oxford and the West Country. “With excellent transport links and close proximity to both Hyde Park and the West End, there is never any shortage of tenants for one- and two-bed units in this part of town,” says Martin Bikhit of Kay & Co.
ISLINGTON/KING’S CROSS
• Average sales prices for a two-bed flat (provided by Savills): £435,000
• Average monthly rent for two-bed flat (provided by FindaProperty.com): £1,117
• Rental yield for a two-bed flat (provided by Savills): 4.8 per cent
• Price falls in last 18 months (provided by Zoopla.co.uk): -12.85 per cent
Thanks to being close to the City and Holborn, Islington is very popular with bankers and solicitors, and both King’s Cross and Islington are popular with young media types, who appreciate the bars and restaurants that line Upper Street, and the proximity to Shoreditch and Hoxton. “The green spaces of Highbury Fields and stock of Victorian and Georgian town houses attract families,” says Kate Eales, regional lettings director for Hamptons International. And the transport links of King’s Cross are attractive to anyone who travels: Eales reports strong demand in both King’s Cross and Islington from tenants who travel to Paris with work via Eurostar, and who use the railway station. “It is a good area for buy-to-let as the yields remain strong – particularly for one- and two-bedroom flats – and because there is lots of demand to live here, landlords experience shorter void periods than many other parts of London.”
FULHAM
• Average sales prices for a two-bed flat (provided by Savills): £425,000
• Average monthly rent for two-bed flat (provided by FindaProperty.com): £1,113
• Rental yield for a two-bed flat (provided by Savills): 4.9 per cent
• Price falls in last 18 months (provided by Zoopla.co.uk): -9.25 per cent
Genteel Fulham, clearly, is no up-and-coming area, but it is viewed as a safe bet, both in terms of rental and future house price growth. For these reasons, it has long been an established area where City workers invest their bonuses or buy homes to live in themselves. “Fulham has always been a popular area among investors, as this area of London attracts reliable tenants who have strong guarantors,” says Robert Sturges of Chesterton Humberts in Fulham. The other feathers to its bow are the good transport connections, the variety of bars, restaurants and shops, and the fact that it is not as pricey as Kensington, Chelsea or South Kensington.
“The area benefits from an eclectic mix of tenants,” adds Knight Frank’s head of lettings for Fulham, Liz Harrell. “There are good schools, so we see British families renting, and the opening of the Lycée Francais Charles de Gaulle has raised the profile of the area among European tenants. There are also the riverside developments attracting young professionals.”