London has long been and is a hot spot for property investors due to its many opportunities, amenities and the ever present demand for rental accommodation. In this article we will look at how investing in a property in London can be a commitment that stands to gain.
Investing in a buy-to-let
A buy-to-let property is a common investing choice for many investors since renting out seems a surefire way to make money on a property, especially when it’s in London. With high employment opportunities, good universities, businesses and as a tourist destination, London always promises to have potential for a high rental demand. In the past year London has also seen a population growth 1.12% making the demand for rental accommodation even higher.
To know how profitable a buy-to-let property is, you need to consider the rental yield of the property. That is, how much you make in rental payments against the cost of the property. This can be calculated by dividing the annual rent from the property price and multiplying by 100 which gives you a percentage. A generally good rental yield is thought to be within the range of 5%-8%.
When calculating your rental yield, you may also need to account for the expenses that come with buying a buy-to-let property such as legal fees, insurance, taxes, agent fees, maintenance costs, etc. The resulting percentage or your net rental yield can give you a clearer picture of what to expect.
In the high rental market of London, a good rental yield is close to 6%. According to an analysis by Zoopla, the areas with the highest rental yields in London are as follows:
- Barking and Dagenham - 6.24% gross rental yield
- Newham - 5.78% gross rental yield
- Bexley - 5.62% gross rental yield
Apart from assessing the rental yield of the property, you will also need to target a location that has a better rental demand. Since most of London’s rental demand is driven by students and young professionals, when securing a property in London as a buy-to-let, you need to consider locations that cater to these two tenant groups. Such a location ensures high rental costs which if coupled with a low cost property, would ideally give you a high rental yield.
Making return through capital appreciation
A somewhat short term return on your investment is to make a profit through reselling after the property appreciates in value either over time or by the renovations you make, then reselling it with a reasonable profit.
An added advantage to buy-to-let properties is that the property can later be sold for a profit after the appreciation of its value in addition to what you already make through rental payments.
Similar to buy-to-let, location plays a major role in how profitable your investment becomes. When choosing the area for this kind of investment, you need to consider the capital growth of the area.
What makes London a good location for property investment?
Apart from the demand for rental property and the value of property there are other factors that contribute to London as an investment hotspot.
Urban regeneration: since the Olympics of 2012 London has been undergoing several regeneration projects some of which brings in new commercial and residential areas. This conditions a rise in new economic growth along with job opportunities which propel the London property market to further appreciate thus increasing its demand for accommodation.
Transportation: the addition of the Crossrail has further boosted the city’s appeal by the allowance of faster commute. This boosts the already well connected city as a travel hub that promotes property value.
Economic stability: London’s large and diverse economy enables it to be stable in any situation, making it a safe option for investors.
Getting a mortgage for a London property
Getting a mortgage in London involves navigating a complex yet well-established process. As one of the world's major financial centres, London offers a variety of mortgage options tailored to individual needs. As a prospective buyer your journey begins by assessing your creditworthiness.
Engaging with a mortgage advisor or broker can also be beneficial, as London's competitive property market often requires a solid understanding of the mortgage market to make informed decisions. Factors such as property valuation, deposit size, and income stability play crucial roles in the approval process. Additionally you need to be aware of associated fees, legal considerations, and the impact of market trends on mortgage rates.
Investing in a vibrant and eclectic city as London could ideally mean there is much to gain. Be it a rental premises, a tenant let out or a business, the promise of your property gaining value day by day is undeniable. While investing in a property might be a great idea, you may also consider to seek the assistance of a professional broker to help you navigate through the legal matters and approval required before developing your property. After all, making the right decision does need a touch of professionalism to ensure that all goes well. Speak to an expert mortgage adviser at BVS Financial Services and Mortgages before embarking on your investment. London is a city that's destined for greater things, and being a part of that progression makes your investment fully worthwhile.
*Please note: Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.
This blog is for guidance purposes only and does not constitute advice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
* Approved by the Openwork Partnership on 15/01/2024