Savvy landlords looking for short-term profits are watching the London property market and keeping a keen eye on falling house prices and rising rents.
While house prices across the UK rose by 0.6% in the year to February 2019, according to the Office for National Statistics (ONS), London house prices dropped by 3.8%, the largest annual fall in over a decade, understandably resulting in a cautious buy to let market.
Increasing yields and falling prices
However, London boroughs vary significantly in terms of house prices and rental yields and in some areas, house prices may have fallen, but net rental yields have increased, providing an opportunity for landlords more interested in short-term profits.
The ONS data shows that Hackney, Tower Hamlets, Wandsworth and Westminster have all had an increase in yields and a drop in property prices. For the highest yields, the data highlights the boroughs of Newham (3.63%), Tower Hamlets (3.4%) and Lambeth (3.3%) as attractive possibilities for landlords.
Shortage of rental properties driving up rents
According to research by London letting agents Chestertons the shortage of rental properties in the capital is driving up rents (and therefore increasing yields). The agents have seen South West London start to outpace the rest of the capital with significant rent rises.
The exit of many smaller landlords from the London market, in particular the South West which was dominated by ‘accidental’ landlords, has had a significant impact on the number of rental properties available to prospective tenants which is undoubtedly driving an increase in rents.
The research shows that the number of tenants registering for a rental property between January and March 2019 increased by 48% on the same period last year. However, in the same period, the number of properties available dropped by 30%. According to Chestertons’ data, rents are climbing three times faster in South West London than anywhere else in the capital; a substantial 5.9% in Q1 2019 year on year.
While London has been traditionally favoured by investors wanting longer-term price growth, the current marketplace is an opportunity for landlords looking for short-term rent profits.
Head of Lettings at Chestertons, Richard Davies highlights Clapham, Putney and Wandsworth as ‘hot spots’, but ‘Wandsworth is expected to become increasingly attractive to landlords’, as it registered a 0.4% rent increase between January and March this year.