London Property Investment Market – Still the Good, Bad and the Ugly?
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(Revision of 2018 Article)
I wrote an article in May of 2018 in relation to the London Property Investment Market, with details of the estimated annual returns on residential property over the next 25 years. Views varied from the most optimistic at £12,500 per annum to the more conservative view that “Stamp duty and Brexit have killed the London market".
So how has the market performed over the last three years and what is the current forecast for the future?
In the year to May 2019, house prices in London were 4.3% lower than in May 2018, and London had the lowest annual growth of any region in the UK that year. In the London Housing Market Report issued early last year, average house prices in London were up 2.3% (3.6% in Inner London) in the 12 months to February 2020, which was the largest annual house price increase in London since October 2017. And this was after BREXIT!
We all know what happened next, and the UK House Price Index was subsequently suspended in May 2020 due to insufficient data as the minimum number of transactions needed to provide an acceptable level of confidence in the data was not met.
How has the market performed over the last 12 months then? Well according to ONS data, the rate of house price growth in London since March 2020 was the lowest of any UK region at 3.7%, compared to the national average of 10.2%. Rightmove reported that average London house prices are 2.9 times higher than prices for similar properties in the north, the smallest ratio recorded since 2013. So, the market is on the up but not at the same rate as the rest of the country.
And what about London landlords, how have they performed over the last year? Zoopla has reported a 9.4% fall in London rents over the last year, driven by a large price decrease in inner London. Rightmove reported a 7.8% decrease in London rents over the same period (14% fall in inner London and 1.1% fall in outer London). They also report that year-on-year rental declines have now bottomed out in London. By contrast, rental prices continue to rise steadily outside London at a rate of 3% per annum.
This rent decline in London is a reflection of the lower demand for rental properties, partly due to job losses and homeworkers no longer needing to be close to offices, and higher levels of supply, as short-term let's change to long-term lets.
However, what’s bad news for the London landlord is good news for the London renters as some areas of London are now accessible to middle-income earners for the first time in years. Across London, rents relative to earnings are the most affordable that they have been in a decade.
And a look then to the future. Responses from the RICS April survey showed steady sales market activity and a lack of supply among rental properties across London. Larger family properties with outside space are selling well, whilst one-bedroom flats are struggling to sell. They expect both prices and sales to increase in London over the next three months as low-cost mortgages and increased consumer confidence help to improve market activity. Rents are expected to fall again over the next three months, but the long-term view is positive for the first time since early 2020.
Chesterton's forecast is that the rate of rental decline will slow down in 2021 to 2% across Greater London and to between 1% and 2% in the higher value locations. Assuming the economy recovers as forecast they expect annual rents to resume growth and to settle into a level slightly above inflation.
And Foxtons believe that the gradual lifting of Coronavirus restrictions has allowed people to reconsider their living arrangements as workers return to offices and universities think about opening their doors. This, in conjunction with a slight decrease in new properties coming to the market, has shown early signs of recovery in rents achieved across the capital. They believe the market, based on Q2 2021 activity, is returning to normality.
Speaking to our property clients the view is mixed, with some still recovering from the impact of last year. Again, the best advice I can give to London landlords and property investors is to ensure that you have a well thought out, flexible plan in place, as well as appropriate funding in line with your rental income, ensuring that you do not put too much pressure on your cash flow, and act fast to changes in the industry, be those legislative, market or interest rate changes.
If you need further advice regarding the London property investment market, please feel free to contact me at andrew.coney@raffingers.co.uk or call me on 020 3146 1602.
Alternatively, please click here to get in touch with a member of the team today.