London has been the UK’s beating heart of property for years on end, but things have got rocky in recent months and buy to let landlords face intimidating challenges if insisting on opting for property in the capital.
On the whole, sales in London property are falling considerably with 42 of its post codes witnessing a slide in house prices. According to new statistics, prices of property in the core of the southern city decreased by 0.2% month on month in April, which equates to a total annual reduction of 1.4%.
This might be good news for buyers looking to escape the all too familiar soaring costs of property, but it’s certainly not ideal for investors. It’s simple – rising house prices highlight an area’s potential for investment in terms of rental yields and maximum capital appreciation. In regions where the cost of property is going down, it’s a warning sign for both new and experienced landlords.
Investment hotspots including Camden, Islington, Southwark and Wandsworth are parts of the city that have endured the sharpest falls, and even outer London areas have seen house prices drop significantly by 3.4% year on year in the biggest tumble ever since 2009. But despite the decline, the cost of obtaining a property in London remains much higher than anywhere else in the UK.
Added costs of stamp duty on top of steep purchase prices make it even more problematic for investors to acquire affordable properties in this deteriorating buy to let location. Stamp duty’s latest alterations by the government mean that buyers of additional properties, including buy to let landlords, are paying higher rates of stamp duty. The method behind the bumped-up tax percentages stems from an incentive to free up the market for first-time buyers.
The higher rates are meant to deter investors from purchasing more properties so that first-timers can have their pick of a wider variety of houses and apartments. However, the results have backfired and led to less people choosing the capital for property in the first place, whilst propelling London into subsequent market stagnation.
Low rental growth is also contributing to the London landlord struggle as investors in buy to let property encounter difficulties when trying to find property that offers decent rental returns. Rental yields aren’t high at all and can reach lows of 2.29% in post codes such as NW5.
When compared to returns on properties up north which deliver yields up to 8%, expert property investment companies like RWinvest are turning their attentions to London’s rival markets in Liverpool and Manchester.
Adding fuel to the fire, London rents are also rising almost three times faster than the wages of its residents. The cost of living is simply too high and many tenants are moving up North in search of a better quality of living at a more affordable price.
Since Brexit, even more uncertainty looms over the British Isles and investors are struggling to remain optimistic about London property. As the rest of the UK benefit from the average rate of inflation currently at 4.2%, it seems that the capital just can’t keep up anymore and buy to let landlords are paying the price.