Every dial on the buy-to-let dashboard is rising at the moment as the number of investors, properties bought and billions of pounds being lent to landlord’s increases. So much so in fact, that former Chancellor of the Exchequer, Norman Lamont, has warned that the market may soon over-heat.
While Lamont may have a point, some people doubt if he knows just how difficult it is to find areas of London where rental yields for landlords average more than 6%. And particularly so given that the ‘new norm’ for yields in the capital is 4% according to James Thornett, Regional Lettings Director at KFH.
KFH recently completed a sweep of their lettings branches to see what the average gross return was for properties, revealing that most ranged from 4% to 5.5% although occasionally some bucked that trend. A good example is a former local authority, three-bedroom property which was recently purchased in Southfields, SW18, for £320,000. On KFH’s advice, the owners converted it into a four bed, which now lets for £1,750 a month; offering a gross return of 6.56%.
But rental yields are not the whole picture and what attracts many investors to the capital are the fast-rising property values, which in the current market are far outpacing those in the rental market. Property prices in London rose in value by 6.3% in August alone according to the Land Registry, and are set to rise further as demand outstrips supply.
According to government statistics, the hottest areas in London for two-beds are: Wembley (5.97% gross return); Catford (5.92%); Hackney (6.05%); Barking and Dagenham (6.27%); Richmond (6.33%); and Lower Edmonton (6.76%). The significance of these areas highlights how buy-to-let hotspots are usually places fashionable enough for employed 20-somethings to rent in but which are too edgy for affluent couples and families to buy in. Thornett says that in his experience, these tend to be better-connected outer areas, such as Kingston, or neighbourhoods of inner London once neglected but now on the up like Hackney or Tooting.
Of course Norman Lamont might think such advice might further stoke an already hot buy-to-let market. But when millions of people are worried by poor interest rates and pension annuity returns, it is no wonder the hunt for buy-to-let hotspots continues.