KFH Buy-To-Let Report

INTRODUCTION: LEE WATTS, MANAGING DIRECTOR

“The buy to let market has seen a resurgence of late across London and many of our branches are reporting growth in this area. The South East appears to be the front runner with the highest yields and price rises Many areas are reporting high activity in the market with Crystal Palace, Surrey Quays, Southgate, Belsize Park, Kingston and Wimbledon all seeing approximately 30% of the market dedicated to this type of sale.

“When it comes to the reasoning behind the purchases, there appears to be a pattern developing. The majority of all buy to let purchases last year were made by those looking to safeguard their pension. Many are in their 40s, 50s or 60s and see property as offering a better return than bank accounts, bonds or other investment vehicles.”

NORTH & CENTRAL LONDON: ROBERT MCLAUGHLIN, REGIONAL SALES DIRECTOR

“The buy to let market remains very active in North London as it offers a secure and reliable investment opportunity. The demand for rental properties is high, particularly from young professionals, as gaining the first step on the housing ladder continues to be an expensive challenge. The areas with the highest demand therefore tend to be the trendiest parts of London with areas such as Islington and Crouch End seeing high levels of demand. This demand has ensured solid rental returns for investors and has attracted many people to become landlords.

“Looking more centrally, we are currently seeing a high percentage of our sales being agreed to investors. As you would expect, prices are quite a bit higher than those seen in North London and while that does have an effect on the rental yield, the capital growth is very high. Most of the boroughs of London that we sell properties in are seeing price increases of around 10% year on year which is very encouraging.”

SOUTH WEST LONDON: LISA MACKENZIE, REGIONAL SALES DIRECTOR

“The sales market in South West London is strong at the moment and I would estimate that between 10% to 15% of all sales in 2012 in this region were buy to let. A key proportion of this market is cash rich, older buyers who are investing for either their children or their pension.

“Areas strong for buy to let include Kingston for its large hospital and university. Fulham is a particularly strong area for cash investors both local and overseas due in part to its trendy image and good links into central London. The less expensive areas of Tooting and Streatham also have high demand for rental property, Tooting in particular due to its very large hospital.”

SOUTH EAST LONDON: JULIAN PEAK, REGIONAL SALES DIRECTOR

“Some of the most progressive markets are within South East London with areas like Peckham, Bromley, Lewisham and Forest Hill enjoying considerable growth and investment. Lenders are still demanding large deposits from buy-to-let investors, and the interest rates charged, despite more schemes becoming available, are still considerably higher than the residential mortgage rates. Cash is very much ‘king’ and if a buyer has the deposit there are excellent investment opportunities throughout South East London especially for two bedroom properties.”

FINANCIAL SERVICES: JOHN PHILIPS, DIRECTOR

“Buy to let mortgages are extremely popular at the moment and the market has picked up tremendously in the last few years. Approximately 13% to 15% of our business involves arranging mortgages of this nature and typically the deposits required range in the region of about 20% to 25% of the total value of the property.

“There are two key aspects that should be considered however when securing a buy-to-let mortgage. The first is that many lenders are now charging a percentage of the loan in fees as opposed to a flat rate which is the usual case for a personal mortgage. This can be far more costly than expected so is something to bear in mind. The second thing to give serious consideration to is the location of the property and its ‘letability’. This should take into account how far it is from public transport and amenities as most tenants feel that accessibility is a big issue.

“Finally, if you are moving out of your property and you are keen to let it out, you need to contact your bank and obtain consent to let before you do anything. It’s worth bearing in mind that your mortgage amount will be calculated against the rental value of the property and not your salary as is traditionally done. Also bear in mind that any rental income will need to be declared to the tax authority.”

NORTH WEST & CENTRAL LONDON:

KEY AREAS:

James Marshall, Sales Manager at KFH Islington, comments: “Prices in Islington throughout 2012 remained resilient and we saw increases in many areas of up to 10%. Demand has been high and coupled with diminished supply, has resulted in many of our sellers having received several offers on their homes, fuelling further price rises. The buy to let market is a huge force in the property market here and rental prices have increased by up to 7% offering great returns for any investor.”

David Manning, Lettings Manager at KFH St John’s Wood, comments: “Q1 2012 showed price increases of between 5% to 10%. As Olympic fever took hold many of our existing landlords withheld remarketing in the hope of attracting short term perceived higher rents during the Olympics. However, as soon as it became apparent that not all homes would achieve a gold medal in astronomic rental prices, our landlords came back to us and many more properties flooded the market. This was replicated with all agents in our area. Post Olympics, the market became disproportionate in available property compared to tenants searching and thus downward pressure on pricing ensued – we saw many properties achieving less than the previous year as a result. I would say at least 5% less over the same period the previous year for the last 6 months. Pricing now remains steady as we come into 2013.”

SOUTH WEST LONDON:

KEY AREAS:

Danny Hardy, Sales Manager at KFH Battersea, comments: “The buy to let market in Battersea is slowly returning following a few quiet years due to lack of suitable funding options. Specific investment buy to let buyers are a relatively small sector of our market (approximately 5%) although investors buying for children and accidental landlords are much more common. These are perhaps people who struggled to sell during the downturn a few years ago or alternatively people who have decided to keep their property for its investment value. Investors here generally look for yields of 5% or more at least and we have seen capital growth of 8% to 10% over the last 12months (approx).”

Simon Stone, Sales Manager at KFH Streatham, comments: “The typical investor in Streatham is buying with a large proportion of cash - if not 100% cash then at least 50%. Very often they rent the property to their children or tenants they have lined up so the yields are not as big a factor for this reason. The typical return would be around 6% in any case. The properties tend to all be 2 or 3 bedroom flats, split equally between conversions and purpose built.”

Tim Beattie, Sales Manager at KFH West Putney, comments: “As a general rule, the profile of the buy to let purchaser in this part of Putney has moved away from those looking to put down the minimum deposit and are looking at capital growth toward buyers with large deposits or even those buying with 100% cash. These buyers typically tend to be in their 40’s, 50’s and 60’s and are seeing better returns on their capital in property than in bank bonds, savings accounts or other investment vehicles.

“The properties which tend to be in demand are principally those which offer more bedrooms than you would typically find at a given price point for example a three bedroom flat from £380,000 450,000 or a one bedroom flat in poor condition which is available for under £250,000 and can be refurbished to add value before being let. Traditional buy to let criteria such as proximity to transport and leisure facilities are also still important. We have however also had buyers who have bought good quality period flats with more than an eye on capital growth and are often buying for their children for when they finish university. These buyers are not averse to paying a premium as they are looking at a longer term investment.

“Those selling buy to let property have tended to be those who became landlords by accident due to the changes in the market over the past 5 years or so. They may have bought in 2007 and then have had to wait for values to recover or were able to keep a property when they upgraded but now need the capital to either extend their principle home or are again looking to upsize and require more equity to retain a positive mortgage rate. Overall there is demand for buy to let however buyers either need to be creative with a floor plan to create additional bedrooms to achieve strong short term yields or they need to pay the market price and look for longer term capital growth.”

SOUTH EAST LONDON:

KEY AREAS:

Stephan Mouzouri, Sales Manager at KFH Borough, comments: “We have a very high buy-to-let market in SE1 and if people aren’t buying to let often they need to feel the property they are buying provides an adequate return. On most flats in the area you are getting a 5% to 6% gross return which remains true up to £500-£600K. Beyond this purchase price the return dips a little as properties at higher levels are more suited to homes than straight investments. However, we are seeing huge demand in the ex-local authority market where gross yield can be 7% to 8% particularly amongst 2,3 and 4 beds. Indeed if we bring a new 2 bedroom to the market we can expect 15-20 buyers to view immediately with an offer to follow pretty much first day.”

Lindsey Steel, Sales Manager at KFH West Wickham, comments: “West Wickham is more of an area where families buy for the schools so we don’t get many investors who buy here. If they do they tend to buy flats, including retirements flats. These have the best yields at around 8%. You would never really think of buying a studio retirement flat for an investment but you can pick one up for between £40,000 and £50,000 and they tend to rent for between £550 to £600pcm.

James White, Lettings Manager at KFH East Dulwich, comments: “We cover quite a large area which includes East Dulwich, West Dulwich, Forest Hill and Dulwich Village. Each of the areas has performed relatively well over the past year with on average a 5% to 6% rise in rental prices. This is largely as a result of people becoming priced out of areas in South West and North London, so we’re now seeing more people spilling over to the West Dulwich area.”