SYS-CON MEDIA Authors: Liz McMillan, Carmen Gonzalez, Zakia Bouachraoui, Roger Strukhoff, David Linthicum

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
The platform combines the strengths of Singtel's extensive, intelligent network capabilities with Microsoft's cloud expertise to create a unique solution that sets new standards for IoT applications," said Mr Diomedes Kastanis, Head of IoT at Singtel. "Our solution provides speed, transparency and flexibility, paving the way for a more pervasive use of IoT to accelerate enterprises' digitalisation efforts. AI-powered intelligent connectivity over Microsoft Azure will be the fastest connected pat...
There are many examples of disruption in consumer space – Uber disrupting the cab industry, Airbnb disrupting the hospitality industry and so on; but have you wondered who is disrupting support and operations? AISERA helps make businesses and customers successful by offering consumer-like user experience for support and operations. We have built the world’s first AI-driven IT / HR / Cloud / Customer Support and Operations solution.
ScaleMP is presenting at CloudEXPO 2019, held June 24-26 in Santa Clara, and we’d love to see you there. At the conference, we’ll demonstrate how ScaleMP is solving one of the most vexing challenges for cloud — memory cost and limit of scale — and how our innovative vSMP MemoryONE solution provides affordable larger server memory for the private and public cloud. Please visit us at Booth No. 519 to connect with our experts and learn more about vSMP MemoryONE and how it is already serving some of...
Darktrace is the world's leading AI company for cyber security. Created by mathematicians from the University of Cambridge, Darktrace's Enterprise Immune System is the first non-consumer application of machine learning to work at scale, across all network types, from physical, virtualized, and cloud, through to IoT and industrial control systems. Installed as a self-configuring cyber defense platform, Darktrace continuously learns what is ‘normal' for all devices and users, updating its understa...
Codete accelerates their clients growth through technological expertise and experience. Codite team works with organizations to meet the challenges that digitalization presents. Their clients include digital start-ups as well as established enterprises in the IT industry. To stay competitive in a highly innovative IT industry, strong R&D departments and bold spin-off initiatives is a must. Codete Data Science and Software Architects teams help corporate clients to stay up to date with the mod...
As you know, enterprise IT conversation over the past year have often centered upon the open-source Kubernetes container orchestration system. In fact, Kubernetes has emerged as the key technology -- and even primary platform -- of cloud migrations for a wide variety of organizations. Kubernetes is critical to forward-looking enterprises that continue to push their IT infrastructures toward maximum functionality, scalability, and flexibility. As they do so, IT professionals are also embr...
Platform9, the leader in SaaS-managed hybrid cloud, has announced it will present five sessions at four upcoming industry conferences in June: BCS in London, DevOpsCon in Berlin, HPE Discover and Cloud Computing Expo 2019.
At CloudEXPO Silicon Valley, June 24-26, 2019, Digital Transformation (DX) is a major focus with expanded DevOpsSUMMIT and FinTechEXPO programs within the DXWorldEXPO agenda. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term. A total of 88% of Fortune 500 companies from a generation ago are now out of business. Only 12% still survive. Similar percentages are found throug...
When you're operating multiple services in production, building out forensics tools such as monitoring and observability becomes essential. Unfortunately, it is a real challenge balancing priorities between building new features and tools to help pinpoint root causes. Linkerd provides many of the tools you need to tame the chaos of operating microservices in a cloud native world. Because Linkerd is a transparent proxy that runs alongside your application, there are no code changes required. I...
In his general session at 21st Cloud Expo, Greg Dumas, Calligo’s Vice President and G.M. of US operations, discussed the new Global Data Protection Regulation and how Calligo can help business stay compliant in digitally globalized world. Greg Dumas is Calligo's Vice President and G.M. of US operations. Calligo is an established service provider that provides an innovative platform for trusted cloud solutions. Calligo’s customers are typically most concerned about GDPR compliance, application p...
Modern software design has fundamentally changed how we manage applications, causing many to turn to containers as the new virtual machine for resource management. As container adoption grows beyond stateless applications to stateful workloads, the need for persistent storage is foundational - something customers routinely cite as a top pain point. In his session at @DevOpsSummit at 21st Cloud Expo, Bill Borsari, Head of Systems Engineering at Datera, explored how organizations can reap the bene...
"NetApp's vision is how we help organizations manage data - delivering the right data in the right place, in the right time, to the people who need it, and doing it agnostic to what the platform is," explained Josh Atwell, Developer Advocate for NetApp, in this SYS-CON.tv interview at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY.
Druva is the global leader in Cloud Data Protection and Management, delivering the industry's first data management-as-a-service solution that aggregates data from endpoints, servers and cloud applications and leverages the public cloud to offer a single pane of glass to enable data protection, governance and intelligence-dramatically increasing the availability and visibility of business critical information, while reducing the risk, cost and complexity of managing and protecting it. Druva's...
Kubernetes as a Container Platform is becoming a de facto for every enterprise. In my interactions with enterprises adopting container platform, I come across common questions: - How does application security work on this platform? What all do I need to secure? - How do I implement security in pipelines? - What about vulnerabilities discovered at a later point in time? - What are newer technologies like Istio Service Mesh bring to table?In this session, I will be addressing these commonly asked ...
BMC has unmatched experience in IT management, supporting 92 of the Forbes Global 100, and earning recognition as an ITSM Gartner Magic Quadrant Leader for five years running. Our solutions offer speed, agility, and efficiency to tackle business challenges in the areas of service management, automation, operations, and the mainframe.