Research from letting agents E J Harris shows that landlords are receiving 12 months’ rent in advance for some sought after lets in the prime London Property market. Property expert Simon Morris explores whether this is the time for UK property investment funds to enter the high end buy-to-let sector.
Buy-to-let refers to the practise of buying property with the intention of letting it out to tenants. These tenants pay rent that can provide a landlord with a long-term revenue stream.
Figures suggest that 2015 may be the time to enter the buy-to-let market. According to the Telegraph there are now two million buy-to-let landlords with five million properties in the UK. Government statistics indicate that a third of properties will have fallen into the hands of buy-to-let landlords by 2032. Meanwhile data from estate agent Your Move’s latest Buy-to-let Index shows that buy-to-let rents rose 3.1% year-on-year from February 2014 to February 2015.
In other words the buy-to-let sector can be a profitable investment. Yet the success of this venture depends on where you invest. As Simon Morris recently noted, the value of the average home in prime London rose 6.4% year-on-year in 2014. The average prime London home was worth £1,572,342 at the end of last year.
Data from a report from Knight Frank shows that the prime London rental market is on the rise. Rents increased 0.2% in January 2015, meaning they have grown 4% in the past year. This has been driven by the rise of buy-to-let in the UK capital’s prime property sector.
Lucy Morton, director and head of agency at W. A. Ellis, has recently suggested that she has seen investors start to enter prime London’s buy-to-let sector. She explained why, saying that “the savvy investor is looking to buy to let to increase their portfolio prior to the election foreseeing that there could well be a boom in the sales market once the uncertainty is over and a government in place for another term.” A poll from the National Association of Estate Agents survey found that 46% of its members believe the housing market is cooling down in the run up to the general election.
Risk vs. reward
This indicates that the prime London buy-to-let market is a good investment. Yet I would add one caveat. It’s all about risk vs. reward. You have to be sure that the considerable rewards of ploughing capital into this market outweigh the risks.
New data from E J Harris suggests that they can. Research from the lettings firm shows that the average wealthy tenant looking to let a two bedroom flat in London’s West End at £3,500 per week is willing to pay more than £200,000 to the landlord – 12 months’ rent and a deposit – before they move in. Further figures indicate that affluent tenants paid more than £100 million up front to landlords in the first 10 weeks of 2015 to rent property in prime London.
Secure revenue stream
Therefore this information suggests that landlords can expect to receive a secure revenue stream if they invest in the prime London buy-to-let market. Tenants will pay above and beyond for the privilege of living in the most prestigious area in the country.
However property expert Simon Morris would add a word of caution. Prime London isn’t a homogenous mass and tenants are unpredictable. You can’t be sure that you will buy a property that will secure a tenant who is willing to pay 12 months’ rent in advance, even in prime London. As the specialist said when offering advice on how to invest in the UK property market in 2015, “choosing the right product, and making sure that you take as much advice as you can is crucial to securing a strong return.”