Investors in the London buy to let property sector are beginning to look at other parts of Britain particularly in the North where lower stamp duty and higher yields make these locations more financially lucrative. The East now has a higher proportion of London-based landlords with one in five homes being purchased by a London landlord according to an analysis provided by Countrywide.
While the average rent increased by 0.5% or £936 per month across Britain, other locations saw a decline especially in London.
The analysis shows that the market now has 11% more homes than last year which is thought to be the main contributor to lower rents. For the last six months rents in London have fallen and year on year are down 3.4%. Other rent declines can be found in Wales 2.5%, Scotland a decline of 1% and the East of England 0.1%.
As a result, especially for London, buy to let landlords are looking to buy properties in other parts of Britain in greater numbers. Data shows that that the number of London investors purchasing properties outside the capital was 19% in 2011 but by 2017 the proportion is at 50%.
Property investors purchased 22,296 homes outside of London an increase from 3,311 in 2010 when Countrywide started its letting index. The number of properties for Manchester and Birmingham totalled 21,951.
As the report states: ‘The data also shows that 9% of homes in the North of England that are bought by an investor are sold to a landlord from London, up from 1% in 2010. While in London only 12% of homes sold in April were bought by an investor, close to a record low.’
The cost of stamp duty for London landlords is one principal reason for the interest in other areas of Britain. The average stamp duty in London has reached £40,400 while the average outside the city is at £6,300.
Johnny Morris, research director at Countrywide says in the report: ’In response to slower price growth and Government tax hikes, London landlords are looking further than ever to find a return. Lower entry costs and higher yields outside of the capital are enticing investors to look further afield than they have previously.’
‘Rental growth remains low across Britain. Mostly driven by London where rents have fallen for the sixth consecutive month. The repercussions of the stamp duty rush are still playing out in the rental market as stock levels continue to remain high. But with fewer investors buying in the capital we will likely see stock levels fall, driving future rental growth.’
Luxury Rental Market
The rents for luxury properties have witnessed a decline of 5% over the past year as more stock becomes available on what is considered an overbuilt luxury home market.
One popular area is the South London location of Nine Elms where more than 20,000 homes are being built on the Thames riverside. As a result this has caused buy to let owners to lower rental rates. Rent per square foot has declined 5.2% from 1Q 2016 to 1Q 2017 according to data analysis by LonRes which is predicting more declines.
Development in Nine Elms has been predominantly luxury flats featuring the usual amenities of swimming pools and security many of which are sold before completion.
Data suggests that newer developments in the SW8 postcode are holding their values with a decline of 2.6% with some tenants getting properties at 7% below asking price.
Marcus Dixon, head of research at LonRes said: “Properties within new developments are becoming an increasingly dominant force within SW8.’
The new properties are the most popular for tenants for their amenities and modern style but the competition among landlords has caused service charges to not be passed on to the tenants.
Edward Lewis, director of residential development sales at Savills stated: “You can get a pool, a gym and a concierge and not have to pay for it.”
‘Anecdotal evidence suggests new homes are putting pressure on tired rental stock within the second-hand market.’
One example mentioned is the Nine Elms residential property Embassy Gardens which has concierge, cinema and a health spa which is being offered at £2,578 per month whilst Zoopla shows a similar residence going for £3,163 at Pinto Tower.
Edward Lewis further stated: “one of the problems for the demand in the London prime rental market is that companies are not bringing more staff to the city. It’s quite clear that corporate relocation budgets are being squeezed.”
Marcus Dixon of LonRes sees a tough time ahead for landlords for the rest of this year,
“There doesn’t seem to be a sense that demand is going to pick up to absorb all of the high levels of stock, so I think we could see further rental falls.”
Additional Data from Knight Frank shows that Thames river properties starting from Wandsworth Bridge to Southwark have declined by 9.3 in the past year to February 2017.
The FT quotes Neal Hudson, director at Residential Analysts: “A lot of the new supply we’re seeing is targeting the more premium end of the market . . . but there’s a limit to how much demand there is at those prices.”
Also in comments to the FT, Richard Donnell, director of research at Hometrack, said: “At the end of the day, landlords are rent- takers not rent-setters and the market is now going to find its level.”
By Kevin Murphy: www.kevinmurphy.london