London Property Investment Market – Good, Bad and Ugly

London Property Market | ATED

I’ve read quite a few articles about the London property investment market over the last few months with contrasting views and, to be honest, I don’t think anyone has much faith in their crystal balls at the moment.

Specialist lender Kent Reliance, part of OneSavings Bank, released the findings of their new research this month which portrays a very rosy picture for landlords, forecasting that a typical landlord in Britain will see an estimated net profit of over £265,500 per property over the next 25 years, through rental income and capital gains. Returns vary significantly across regions, with profits in London estimated to reach over £307,000 in today’s money, almost £12,500 per annum.

Capital gains, which some might consider speculative, comprise a significant portion of these returns however the report points out that landlords need not exclusively rely on them. According to the report, even if a landlord did not sell their property and therefore did not make a capital gain, income alone would not only cover outgoings, it would provide a profit of over £65,500 over the period, over £2,500 per annum. There is some hope for the London property investment market. Good news!

Reading a blog on BA Marketplace, making a profit from London property investment is “increasingly difficult” due to “prices in the capital falling and profits diminishing”. In the latest house price figures released by Halifax, London was one of only two areas in the UK to see house prices fall in March compared to the same month the previous year, with an average 1% drop across the city. They warn that investors need to have a plan and could “look outside the capital to where property prices are significantly cheaper”. The bad!

Finally, in an article in The Guardian, Britain’s property surveyors issued the most downbeat assessment of the housing market for five years. The Royal Institution of Chartered Surveyors (RICS) said that in March demand from buyers fell for the 12th month in a row, new instructions from sellers declined for the seventh consecutive month, and prices were flat nationally. The headline reads “Stamp duty and Brexit ‘have killed London market’!”. Not so great news for the London property investment market.

RICS measures confidence in the property market by balancing surveyors seeing price rises against those seeing price falls. It said the figures were the lowest since 2013. The downshift is deepest in London and the south-east of England, said RICS, but prices were still rising in parts of the Midlands and north. “London exhibits the weakest feedback, with a net balance of -47% of respondents citing further price declines. Respondents in the south-east, East Anglia and north-east, also reported prices to be falling but to a lesser extent than in the capital. Meanwhile, prices continue to drift higher across all other parts of the UK, with Northern Ireland, Wales and the East Midlands seeing the strongest readings.” They also note that the predictions that rents would rise following the introduction of greater taxation on buy-to-lets have yet to materialise, with tenant demand weak in many parts of the country. The ugly.

As I said, very contrasting views. Speaking to our property clients the demand for rent in London has yet to feel the impact of Brexit, the changes in stamp duty have had an impact on total purchase prices but little on demand, and the changes in property tax would have had a large impact on their cash flow had they not made alternative arrangements. The best advice I can give 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 on andrew.coney@raffingers.co.uk or call me on 020 3146 1602.

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