in a property on a ‘managed rent’ indefinitely, leaving many landlords with loss making investments.
In the mid 1990’s came the buy-to-let mortgage, allowing investors to borrow as much as 85% of a property’s value. The popularity of buy-to-let is cited a main driver of the property boom of 2000 to 2007. When the crash (or ‘credit crunch’) happened in 2007 after the market for buy-to-let loans went from several thousand to a few dozen in a matter of months.
Five years on and the buy-to-let market is tiptoeing back to strength. Borrowing levels for buy-to-let products reaching new post-crash highs since the start of 2013.
London popular with long-term investors
London remains one of the most popular cities not just in UK or Europe, but worldwide for buy-to-let property. Investors see London as a safe, reliable investment for their portfolio for retirement.
Historically, capital growth in London has outperformed the rest of the UK. Despite rental yields being lower than other UK cities, London property investment provides property owners with the assurance of being one of the world’s fastest moving rental markets. Many other UK cities may offer gross yields of 8%+, but tend to have lower capital growth and the longer rental void periods, eroding the net yield.
Low risk compared to other cities
Even at the bottom of the market in late 08/early 09, average prices declined by 20% from their former highs but rents dropped by very little. The average drop in London rents during this period was 7.5%, which lasted eighteen months, after which the rental market started to rise again.
London not without risks
But, investing in London property is not without its risks. Buying a leasehold building in the wrong building or too far from transport links can significantly affect returns. With a large stock of period buildings, investors often underestimate the cost of managing their investment.
If you are buying as a pension investment you need to consider how the property will look in ten, twenty even thirty years, as some properties don’t stand the test of time as well.
Which properties offer the best return on investment?
This will depend on the level of the market you are investing in and your strategy. But in its simplest form, if you buy for capital growth more than rental return, classic period properties are the way to go. For rental returns, lower outgoings and less management costs, new-builds tend to be better.
Things to consider when buying property as a pension
-How long you will keep the property
-Will the property age well
-Who is the target market for renting – e.g. international, professional renters
-Service charges – will these erode your returns