The London property market always offers investors excellent potential for investment. However, as with investing in any type of property, it’s crucial to understand recent trends. Over the last few years, the market in London has undergone tremendous change. First, the global COVID-19 pandemic significantly affected where people live and work. Then with the UK’s exit from the EU, the property market in London has new potential for growth.

One of the main questions property investors ask is if London is a good place for property investment right now. Of course, there is always potential to invest in London — if you know where to buy property.

To make profitable investments in the London property market, understanding its complexities is crucial. Typically, house prices in London are the highest in the country, but the rental yield can be average. However, London is the top city in the country for attracting overseas investors, tourists, and UK-based property developers.

With the end of travel restrictions, increased certainty after Brexit, more people working from home and re-establishing London as a financial hub, the potential for investing in London property in 2021 and 2022 is tremendous.

However, some investors are still hesitant to invest in the UK property market. This is because, despite positive signals about improvement in the country’s economy, some uncertainty still exists in specific sectors.

This article is a guide to investment in the London property market. You will find out what the current trends are for buying and selling property in London. In addition, you will learn where are the best areas to buy an investment property in London.

Please read on to find out why property investment in London is a good idea right now.

 

 

 

 

The current market in London

Trends in the London property market mean there are three compelling reasons why London tops the list for “best place to buy property”. First, London currently attracts most foreign investors into the UK due to its financial stability. Second, the shift to a “work-from-home” (WFH) style of working means that many workers need suitable housing for working remotely. Third, London has the most robust economy in the UK’s post-COVID.

According to official figures from the Office for National Statistics (ONS), London is the top city in the country for attracting foreign investors. Foreign direct investment (FDI) accounted in London for almost half in the UK. The value of FDI in 2019 was £661 billion, and this was at a time when growth in the rest of the UK flatlined. However, some areas of London saw an increase in FDI of 65 per cent.

Another interesting trend in the Capital’s property market is the number of office workers working remotely. Many large companies are now reducing office space and encouraging a WFH environment. What does this mean for investors? There is a growing shift away from office investment to residential property investment.

Since the COVID-19 pandemic, three of the top ten sectors for investment are housing-related. These are private rented housing, affordable housing, and social housing. Interestingly, investment in office space didn’t make it into the list. This trend means that the demand for homes will increase.

What is it about the economy in the UK that makes London an ideal city to buy an investment property? London ranks second place in the table “Top Cities for Real Estate Investment in 2021”. Many investors view London as one of the best major cities that offer stability and liquidity, making it attractive for long-term investments.

House prices in London

London has notoriously high house prices. However, the cost of investment rarely puts investors off when it comes to buying houses in London. One reason for this is that London always performs well through rental income and capital appreciation. As a result, the housing market in London remains relatively stable, and properties represent a sound investment.

According to the UK House Price Index, the average price for a house in London in August 2021 was £525,893. Although this figure is the highest in the country, it’s vital to remember that London has some of the most affluent neighbourhoods in the UK. For example, in Chelsea and Kensington, properties sell for over £2 million.

Many up-and-coming areas of London have affordable housing. As a result, they are ideal for investors looking to invest in rent-to-buy properties. For example, areas such as Canary Wharf, Poplar and Whitechapel are East London neighbourhoods undergoing extensive regeneration. In addition, investors can expect that appreciation in these areas will be on par with the rest of the country.

Some estimates put the predicted property price growth in London at 12.6 per cent.

Other factors to consider when investing in the London property market

Even though house prices in London are some of the highest in the country, investors can expect a good return on investment (ROI). However, rental yield and ROI depend significantly on the type of London property and area. Typically, investing in flats or houses for renting is a safe strategy. As a result, you can expect excellent property appreciation and receive a healthy rental cash flow.

Nearly 30 per cent of properties for sale — flats and houses — in London are in the £500 to £700 thousand price range. So, what return on investment could you expect to receive within five years?

Let’s say the property cost £544,000 — the average cost of a London flat in a profitable area. Considering legal expenses, taxes and other related costs, the final cost would be around £559,000 for a UK investor. In terms of rental yield, you should expect to receive £2,200 in rent payments monthly. After considering fees and mortgage costs, the annual profit would be around £12,840, or a rental yield of 4.85%. Over five years, this works out at £64,200 profit and an estimated capital gain of £86,645 if appreciation is 3% per year.

Areas in London with rental yields between four and five per cent include Canary Wharf, Poplar, East Ham, Greenwich, Barnet, and Cranbrook.

It is also vital to consider that London has high service charges. Here are a few factors to think about:

  • Service charges - London has some of the highest service charges in the county. Some reports say that these can be as high as £19.39 per sq. ft.
  • Ground rents - Technically freeholders can fix ground rent fees however they like. The average for the UK is around £400 per annum, but in London can be as high as £1,000. An investor needs to factor this into their calculations and be aware that they can escalate.
  • Length of lease - Most flats come with a leasehold, and the investor must pay ground rent to the landowner. A lease typically lasts for between 99 and 125 years. However, they can be longer. But investing in a building with a short lease — 20 to 80 years — may make it difficult to sell the property and effect the value of the property. If they are less than 80 years, they can be extended, but this can be costly and the lower the length of the lease the more expensive the extension will be.

When calculating return on investment, it is vitally important to include ongoing fees in the calculation. High service charges, the cost of ground rent, and the ability to sell the property affect the viability of the investment.

Why invest in London property now?

Several reasons make it worth considering the advantages of investing in London property in 2021 and 2022. For example, London ranks among the world’s top cities in terms of investment opportunities, infrastructure, culture, and economy.

Here are a few more reasons why London property investment makes sense.

First, trends show that London has recovered well from the global health pandemic. Also, the exit from the EU has not affected the Capital in the way many forecasters feared.

Second, London remains one of the most important financial centres in the world. This fact means that the city will always have an influx of international investors and workers. Even despite financial crises, London’s economy has always remained strong.

Then, London is a great place to live. The city is a vibrant metropolis where cultures from all over the world merge, creating a unique environment. The nation’s capital also has some of the best hotels, office spaces, restaurants, and transport links anywhere on the planet.

The best areas to buy an investment property in London

Making wise property investments in London requires buying houses in the right area. The city has neighbourhoods ranging from incredibly expensive to surprisingly affordable. Therefore, you must know where you can get the best return on your investment.

Presently, East London is the most affordable area to find sound investments. Generally, houses and flats sell well below the average for North or South London. However, because areas around the Docklands (postcode E14), Whitechapel, Blackwall and Poplar in Tower Hamlets are undergoing regeneration, these areas look set to provide the greatest return on investment. Additionally, these East London areas are popular because they are close to the city’s financial heart, Canary Wharf.

Other London neighbourhoods that offer the highest investment yields include Olympic Park and Stratford (E20), Chingford and Highams Park (E4), Southwark (SE1) and the SE28 area along the banks of the Thames, stretching from Woolwich to Belvedere.

Property Investment in London

If you are thinking about investing in the London housing market, get in contact with Hastings International. Our team of property specialists has excellent market knowledge of the best areas of London to buy investment properties.