Lending for buy-to-let accounted for £3.9 billion (33,200 loans) in the three months to June, which is 18 per cent higher than a year ago.
Gross yields in Brick Lane, Spitalfields and the rest of E3 are an impressive 11.3 per cent, outstripping other forms of investment including most managed funds, according to research by Hamptons International and Primelocation.
Forecast yields in Watford stand at 10.9 per cent, while they are 8.9 per cent in E16, the area around the Canning Town regeneration zone.
The lowest London yields are in N4 (Finsbury Park), TW9 (Twickenham) and SW7 (South Kensington and Knightsbridge), partly due to the high cost of property in these areas.
Choosing an area for a buy to let investment is a complex balancing act
Landlords whose priority is income should opt for the highest performing areas, but those whose priority is capital growth should look at prime postcodes – if they can afford the high entry prices.
And Challis pointed out that upmarket areas have other advantages over their cheaper but grittier counterparts. “There is a hidden cost of voids and high management costs in the less salubrious areas,” he said.
The report follows the announcement that buy-to-let lending soared by 18 per cent between April and June compared to the same period last year.
Today’s research also reveals the cheapest and most expensive places to rent in London. Predictably the costliest areas are in prime central London with SW7 followed by W11 (Notting Hill).
The most economical areas are E3 (Plaistow and West Ham), BR3 (Beckenham) and SE15 (Peckham).
But Challis tips the SE23 postcode of Forest Hill and Honour Oak as a a good value buy with steady return. “With its proximity to sought-after Dulwich, SE23. This is becoming an increasingly popular area with families looking for green space within easy access to London,” he said.