London is an economy in itself and 2016 will bring its own set of challenges to landlords and investors. Here we take a look at what obstacles you can expect to face and the opportunities that could be exploited.
The London market is booming but the recently announced stamp duty surcharge will help slow price growth into the start of 2016. Savills has predicted a steady 2016, 2pc increase in 2017, and a further 5pc growth in 2018.
The prediction is a hopeful but welcome one. Many aspiring home owners are being priced out of the market every day and many investors and renters are already looking towards the commuter belt, in particular Luton, to find somewhere to rent and let. Brighton and Oxford are slightly further away, but are also popular choices for relocating commuters.
Rents in Luton have risen 10.4pc this year – ideal for landlords – to an average of £722pcm, almost £1,000 less than the London average of £1,560.
Other areas around the commuter belt have also registered strong rent increases, including Swindon and Southend (both 9.7pc). Rents such as these, in properties that are growing in value at a slower rate, make investment yields much higher while still attracting bedraggled London households who need to downscale.
63,000 Londoners bought homes outside the capital this year. No wonder – the average home in London costs two and a half times more than the cheapest areas of the country, and London rents are more than double the national average.
Furthermore, the households in London are savvy. Prices are growing, yes, but not as fast as they once were. Families have worked out that they have squeezed out all the equity from their post-recession price growth, and are now in a perfect position to relocate elsewhere. Hertford and Chelmsford are popular for families who are relocating.
Up, up up in the Capital
Meanwhile, price growth in the capital is both impressive and disturbing. Prices in the postcode area N2 in Zone 3 have increased by more than £205,000 this year. Newham increased by 12.5pc while Barking and Dagenham managed 12.1pc. However, Hillingdon, west of Charing Cross blew these increases out the water with 13.1pc price increases, but still managed to stay at an average price of £361,600.
Where else is affordable? Bexley property averages out at £306,500, while Savills also reckons Waltham Forest and Lewisham will grow in value steadily next year.
First-Timers Given Hope
Research by the House of Commons showed that young buyers would need to save for 30 years before they could afford to buy their first property.
No surprises, then, that the number of loans was down 1pc from last year according to the Council of Mortgage Lenders – average deposits hit £72,000 in London, which is just too much for first-timers.
However, there is a silver lining. The Chancellor has recognized the disparity between affordability in London and elsewhere, and also accepted that people shouldn’t have to curtail their ambitions and dreams due to funding a house.
Thanks to the extension of Help to Buy in London, people with a 5pc deposit will be able to borrow up to 40pc of the value of a new-build home from the government.
This doubles the current rate of 20pc, which limited all but the wealthiest of first-time buyers and foreign investors.
Furthermore, the 3pc stamp duty surcharge on buy-to-let landlords will probably reduce the number of parties interested in these properties. This will give the pool of first-time buyers competing for the starter homes a proportionately better chance of winning the home.
Renters Being Stretched Further
Some two and three bedroom properties have already broken the £2,000pcm barrier, and Tom Copley, the Labour London Assembly housing spokesman, calculated that the average rent across the city will be at least £2,000pcm by 2020.
The prediction is that there will be more build-to-rent developments in the East Village and the former Olympic Athletes’ village in Stratford, which is already being used.
Developers will also offer amenities to the rental complexes, including cinemas and gardens.
Where to Put Your Money
Homes and Property has put together an article that explores the major infrastructure and development projects going on in the capital, plus how they are likely to affect house prices and the ease of commuting. The report also includes analysis of the Zones. To see the Homes and Property article, please follow this link.
Ellis & Co is a sales and lettings specialist in London, with 20 offices inside the M25. Contact your local office to find out more about investing in 2016.