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London buy-to-let market 'buoyant'

30th March 2007 | back to article listings BACK    print this article PRINT

Investors who have, or are looking to acquire, a property in the domestic market may wish to consider looking at London. Being the capital, prices are obviously higher than the rest of the country and the initial amount of investment needed would reflect that. According to the BBC, the average house price in London stands at £322,144.

However, many industry bodies say the London lettings market is in good health, with one describing it as "buoyant". High demand has pushed up rents, so there is the potential for excellent yields which can offset the large amount of investment required at first. According to Malcolm Harrison of the Association of Residential Letting Agents (ARLA), making a profit on a buy-to-let property in London is "still very easy to do".

"It's a buoyant market," he says, before explaining why: "On the assumption you've done your sums correctly right at the beginning, you can cover your costs, you might be making a profit on the rental income and you're certainly making some capital appreciation."

According to the Paragon Mortgages Buy-to-Let Index, used to record rent yields nationwide, the average investor now makes around £10,000 per year from rental income. London is identified as a particularly high-growth area. John Heron, managing director of Paragon Mortgages, said: "Demand from tenants is particularly strong in London… the capital sees the largest influx of inward migrants and continues to enjoy a buoyant economy notwithstanding the impact of rising inflation and borrowing costs."

Mr Harrison agrees, describing the capital as "a huge, cosmopolitan, extremely successful place". Noting the "tremendous amount of economic activity" in the city, he says there are "all kinds of reasons for people to come to London". Many young people who live and work in the capital are renting their home. For some of those, it would be impossible for them to buy their own place in London or the surrounding area outright, so renting is the ideal solution.

An ARLA ten-year report into the buy-to-let market concluded that "buy-to-let investors have opened up a lot of locations and made them attractive to live in". According to Mr Harrison, by doing so they have increased both the range and quality of available housing stock, allowing people to live "somewhere nice" without having to have access to vast amounts of capital. "It's what buy to let is all about, on the social side," he says.

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