Welcome!

Blog Feed Post

Investing in London property

Investing in London property is not for the faint-hearted. The colossal cost of homes in the capital is enough to put many investors off outright, and because of the outlay required, the yields don’t trend as high as they do in other, cheaper parts of the UK. But something draws investors, both local and foreign, to London property in droves.

The value of London property

The same feature of London property that leads so many to avoid it is its chief appeal.

As we’ve stressed before, gross yields are at best a quick comparison tool – a back-of-a-matchbook calculation that takes into account only the property value and the annual rent. It doesn’t account for purchase costs, expenses or – the big one – capital appreciation.

If you fancy a little bit of etymology: the phrase “safe as houses” is thought to date back to the 1840s, when a flurry of speculative investment in new railway companies was followed by the decisive ‘pop’ of a bubble. People turned their attention back to more tried-and-tested forms of investment, such as property, where capital appreciation is slow but sure.

A mortgage may well last a couple of decades or more. And in that time, though damage, depreciation and the occasional pesky recession might weather at the immediate, relative value of a home, the long-term trend is upwards. For London property, this is especially true.

Between the onset of the 00s and the pre-recession property price peak, the average house price in the UK rose by 125%. For the UK as a whole, this amounted to an increase of about £100,000; for London, the figure is almost double that.

And then there’s how London fared during and after the recession. Like everywhere else, the average house price in London fell by about 15% throughout 2008 and the early part of 2009. But whilst the rest of the UK has seen only a modest and haphazard recovery, London started dusting itself off as early as mid-2009 and has since equalled its inflation-adjusted, pre-recession peak.

(All house price figures used in these calculations came from the Land Registry’s House Price Index.)

So, is London property recession-proof?

This sort of investment is called ‘speculative’ for a reason. There’s no sure-fire way of guaranteeing that it will be successful, and no investment is 100% risk-free. And there are those who anticipate that the current alarming acceleration of property prices in London will lead to an even more devastating crash in the near future, one from which it will be even harder to recover.

So in short, no. London property is not ‘recession-proof’, though historical house prices show that it fared a darn site better than anywhere else in the UK during the last one. For those willing and able to shoulder the added cost, however, there are steps you can take to make sure the investment is as solid as possible.

1. Invest for long-term gains

Whilst it’s possible to invest for income in London – premium corporate lets in the City are a good example – Greater London property is almost always better suited to a long-term plan. In the short term, the property only needs to pay for its own running costs and mortgage repayments. The returns will come later, either in the form of an unencumbered income or a sale.

So it’s important that you have a long investment horizon, and important that you can service a couple of decades’ worth of buy to let mortgage debt without necessarily deriving an income from the property.

For more information on the differences between growth- and income-based investments, see this article.

2. Choose the right area

I like ‘Location, Location, Location’, but I don’t feel that the title does enough to emphasise the importance of Location.

Investment in London is spreading outwards, largely because fewer and fewer investors can afford to buy Central London property. Many of the suburbs are investing in infrastructure development, such as new transport links, and buyers who find property in these areas slightly ahead of the curve (i.e. before the inevitable surge in local prices that come with the new accessibility and industry) are sitting pretty.

3. Choose the right property type…

An addendum to this one: “…and market it to the right type of tenant.”

Traditionally, detached houses gained and held value better before the recession. After the recession, there hasn’t been much in it aside from the added cost.

Terraces and flats are cheapest, and it’s common to see Victorian terraces in London converted into two or more separate flats or maisonettes. Larger properties can also be converted into HMOs (Houses in Multiple Occupation) to let to sharers – either on a joint contract or room-by-room basis. The latter is more popular in London, as young single professionals tend to move from house-share to house-share as they settle into a career. You benefit from separate rents, but also face the downside of often-complex HMO regulation as well as short-term tenancies. See our article Letting to sharers for more information.

Always remember to do your research when buying a property. Look into average local rents and incomes to make sure the rent you charge will a) be affordable for your prospective tenants and b) cover your costs. If you find yourself unable to service your debt without pricing yourself out of the local market, you may have to look elsewhere or try to forward a little bit more money in order to lower your ongoing buy to let mortgage costs.

4. Buy below market value where possible

Many landlords and small-scale developers make good money finding BMV properties in need of renovation or refurbishment and doing them up before letting (or selling) them. Many such properties can be found at auction, disused or repossessed and in need of some ol’-fashioned TLC.

The downside of such properties is that they tend to be deemed uninhabitable in their bought state, and so many buy to let mortgage lenders won’t finance them. As such, the property auction was always traditionally the territory of the enviable cash buyer. Nowadays, however, there are myriad alternative finance options available: bridging loans have come into the mainstream as one of the favourite forms of short-term loan and are perfect for this sort of investment.

5. Avoid over-gearing

Of course, there’s no hard and fast rule for property investment, and a lot of landlords can find great success with heavily geared portfolios, even in London. But with the sheer amount of capital at stake, there’s no harm in hedging your bets.

Prices dropped by about 15% during the last recession, so the average high LTV buy to let mortgage will still leave you with enough equity in the case of a repeat performance. But the lower the LTV, generally, the better the interest rate; and with the possibility of a base rate raise just around the corner, minimising the potential impact should be a priority. As your investment goal is likely also for future gains rather than income, if you are able, you might also consider a repayment mortgage.

As stated, the above list is not definitive, and you might find that a completely different investment strategy works for you. But investing in something as expensive and volatile as London property warrants a degree of care and a great deal of preparation – if you’re willing to put in the time and work finding the right property and right buy to let mortgage for it, you’re already off to a flying start.

Read the original blog entry...

More Stories By TurnKey Landlords

Amelia Vargo is an online marketing executive for CT Capital. Amelia writes for Turnkey Mortgages, Turnkey Landlords, TurnKey Bridging, TurnKey Life and Commercial Trust.

Latest Stories
Digital transformation has increased the pace of business creating a productivity divide between the technology haves and have nots. Managing financial information on spreadsheets and piecing together insight from numerous disconnected systems is no longer an option. Rapid market changes and aggressive competition are motivating business leaders to reevaluate legacy technology investments in search of modern technologies to achieve greater agility, reduced costs and organizational efficiencies. ...
Organizations planning enterprise data center consolidation and modernization projects are faced with a challenging, costly reality. Requirements to deploy modern, cloud-native applications simultaneously with traditional client/server applications are almost impossible to achieve with hardware-centric enterprise infrastructure. Compute and network infrastructure are fast moving down a software-defined path, but storage has been a laggard. Until now.
DXWorldEXPO LLC announced today that Kevin Jackson joined the faculty of CloudEXPO's "10-Year Anniversary Event" which will take place on November 11-13, 2018 in New York City. Kevin L. Jackson is a globally recognized cloud computing expert and Founder/Author of the award winning "Cloud Musings" blog. Mr. Jackson has also been recognized as a "Top 100 Cybersecurity Influencer and Brand" by Onalytica (2015), a Huffington Post "Top 100 Cloud Computing Experts on Twitter" (2013) and a "Top 50 C...
In his session at 20th Cloud Expo, Mike Johnston, an infrastructure engineer at Supergiant.io, discussed how to use Kubernetes to set up a SaaS infrastructure for your business. Mike Johnston is an infrastructure engineer at Supergiant.io with over 12 years of experience designing, deploying, and maintaining server and workstation infrastructure at all scales. He has experience with brick and mortar data centers as well as cloud providers like Digital Ocean, Amazon Web Services, and Rackspace. H...
Dion Hinchcliffe is an internationally recognized digital expert, bestselling book author, frequent keynote speaker, analyst, futurist, and transformation expert based in Washington, DC. He is currently Chief Strategy Officer at the industry-leading digital strategy and online community solutions firm, 7Summits.
Digital Transformation is much more than a buzzword. The radical shift to digital mechanisms for almost every process is evident across all industries and verticals. This is often especially true in financial services, where the legacy environment is many times unable to keep up with the rapidly shifting demands of the consumer. The constant pressure to provide complete, omnichannel delivery of customer-facing solutions to meet both regulatory and customer demands is putting enormous pressure on...
IoT is at the core or many Digital Transformation initiatives with the goal of re-inventing a company's business model. We all agree that collecting relevant IoT data will result in massive amounts of data needing to be stored. However, with the rapid development of IoT devices and ongoing business model transformation, we are not able to predict the volume and growth of IoT data. And with the lack of IoT history, traditional methods of IT and infrastructure planning based on the past do not app...
"Akvelon is a software development company and we also provide consultancy services to folks who are looking to scale or accelerate their engineering roadmaps," explained Jeremiah Mothersell, Marketing Manager at Akvelon, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
DXWorldEXPO LLC, the producer of the world's most influential technology conferences and trade shows has announced the 22nd International CloudEXPO | DXWorldEXPO "Early Bird Registration" is now open. Register for Full Conference "Gold Pass" ▸ Here (Expo Hall ▸ Here)
More and more brands have jumped on the IoT bandwagon. We have an excess of wearables – activity trackers, smartwatches, smart glasses and sneakers, and more that track seemingly endless datapoints. However, most consumers have no idea what “IoT” means. Creating more wearables that track data shouldn't be the aim of brands; delivering meaningful, tangible relevance to their users should be. We're in a period in which the IoT pendulum is still swinging. Initially, it swung toward "smart for smart...
IoT is rapidly becoming mainstream as more and more investments are made into the platforms and technology. As this movement continues to expand and gain momentum it creates a massive wall of noise that can be difficult to sift through. Unfortunately, this inevitably makes IoT less approachable for people to get started with and can hamper efforts to integrate this key technology into your own portfolio. There are so many connected products already in place today with many hundreds more on the h...
"We were founded in 2003 and the way we were founded was about good backup and good disaster recovery for our clients, and for the last 20 years we've been pretty consistent with that," noted Marc Malafronte, Territory Manager at StorageCraft, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Here are the Top 20 Twitter Influencers of the month as determined by the Kcore algorithm, in a range of current topics of interest from #IoT to #DeepLearning. To run a real-time search of a given term in our website and see the current top influencers, click on the topic name. Among the top 20 IoT influencers, ThingsEXPO ranked #14 and CloudEXPO ranked #17.
Without lifecycle traceability and visibility across the tool chain, stakeholders from Planning-to-Ops have limited insight and answers to who, what, when, why and how across the DevOps lifecycle. This impacts the ability to deliver high quality software at the needed velocity to drive positive business outcomes. In his general session at @DevOpsSummit at 19th Cloud Expo, Eric Robertson, General Manager at CollabNet, will discuss how customers are able to achieve a level of transparency that e...
"DivvyCloud as a company set out to help customers automate solutions to the most common cloud problems," noted Jeremy Snyder, VP of Business Development at DivvyCloud, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.