Let’s explode the myth that London’s landlords are dining out on champagne and caviar, shall we? I’m getting rather weary of people telling me that rents are so high because we are so greedy.
Rents are expensive because properties in London are expensive. Sure, some landlords who snapped up property years ago when it was cheaper might be making a tidy sum, but those who invest now will be lucky if they’ve enough left out of the monthly rent to buy half a pint and a packet of crisps.
Some friends of mine have just done an excellent job renovating a one-bedroom Victorian conversion flat which they now plan to let, but they’ll struggle to get enough rent to cover their mortgage and it’s going to take years to recoup the money they spent doing it up.
Letting agents who have viewed the property agree that rents in that area have fallen slightly in the past year but property prices have shot up, so landlords have seen their return on investment shrivel.
Of course, my friends have bought the property in the expectation that it will continue to go up in value so they hope to make a profit when they come to sell, but in the meantime they might have to subsidise it.
And this is the difficulty of entering the buy-to-let market in London; purchase prices are so high that there are very few areas where you’ll get a good rental yield, so your investment might be going up in value every month but can you afford to hang on if the rent doesn’t cover your costs?
Rental yields across much of London average less than four per cent, according to residential property group Move with Us and search engine Home.co.uk, which looked at the sale and rental prices of two-bedroom properties during the first six months of this year.
Mortgage broker Martin Stewart of London Money says those looking to take out buy-to-let mortgages at the moment are being offered interest rates somewhere between 2.84 per cent and 3.49 per cent (though this will vary according to individual circumstances), so with a typical mortgage of 70 to 75 per cent of the property’s value, a gross yield of just four per cent won’t leave much to cover letting agency fees, insurance, service charges and ground rent.
And what about maintenance? With such low yields, landlords will struggle to put aside enough money to pay for ongoing repairs, let alone refurbishments to keep their properties up to date.
However, if you are determined to invest in property, the research by Move with Us suggests that the areas around the 2012 Olympic site give the best yields, with landlords in the E15, E13 and E6 postcodes typically achieving over seven per cent.
Alternatively, I’d suggest buying an ex-local authority or housing association flat as your outlay should be much lower than buying a private house, but if it’s in a good area you should still get a decent rent.
For the best monthly return on investment, however, you’re better off buying outside London in cities where property prices are lower but demand for rental accommodation is high. Areas giving the highest rental yield include parts of Birmingham, specifically the B7 postal area where buy-to-lets typically yield 10.6 per cent, and coastal Kent, where it’s 10.5 per cent. Other good bets are parts of Surrey, Middlesbrough and Merseyside, including Knotty Ash, birthplace of comic Ken Dodd, where yields are typically 9.5 per cent. Now that’s what I call Happiness.
Follow our accidental landlord on Twitter at @VicWhitlock
* Find many more homes to rent at www.homesandproperty.co.uk/lettings.