As London rents edge higher, UK property investors receive record rental income

Is now the time to consider renewed investment in London?

Recently released rental market statistics show that average rental prices in the UK have reached record levels, and increased across every region for the first time in almost two years. Other reports confirm that rental prices in London have become more affordable over the last 12 months and that property prices in prime central London are bottoming out and could return to their long-term trend of growth this year.

Property investors enjoy increased rents

A new report from Landbay shows that rental prices have increased across the UK in January. This is the first month in two years that rents have increased in every region of the UK. While the annual increase for the UK is only 0.66% over the 12 months since January 2017, the average rental price of £1,198 per month is a new record.

Have rents in London turned a corner?

London rental prices rose by a fraction in January, ending a near two-year stretch of monthly declines. While much has been made of falling rents in the capital, the average rental price here is now down by just 0.54% over the last year. This monthly increase could signal that London rents have reached a bottom.

London rents are now more affordable

London exerts great weight on UK average price performance – both in capital values of property and rental prices. Therefore, research from the National Landlords Association that rental prices in many parts of London are now more affordable is welcome news.

Its research shows that:

  • 23% of landlords in outer London have increased rents, while only 16% have decreased rents
  • In central London, only 14% of landlords have decreased rents

However, the findings of the research also suggest that tenant demand in the capital is weak, as people seek accommodation in commuter areas – signalling that rental prices in outer London and the commuter towns may continue to push ahead through 2018.

Savills says rents will forge ahead this year and for five years

Faster rental growth is predicted for the UK by Savills. Its analysts expect average rental prices to increase by 2.5% this year, and by a cumulative 15.5% over the next five years. Savills says that this increase is partly reflective of the cost pressure caused by tax and regulation changes being exerted on landlords. The CEO of Landbay, John Goodall, agrees:

With all the tax and regulatory changes landlords have shouldered over the past couple of years, an uplift in rents has been on the cards for a while, and is likely to continue into 2018. Stamp duty changes pushed up transaction costs for landlords back in 2016, as have a raft of new regulations from the PRA landing in 2017. Furthermore, the Bank of England’s Term Funding Scheme comes to an end this month, pulling away one of the crutches that have allowed many mainstream lenders to keep mortgage rates so low. This, together with gradually rising interest rates, will eventually push up borrowing costs for banks, and consequently for landlords, who will have to pass some of these costs onto tenants in the form of higher rents.

Is it time for property investors to buy in London?

There are signs that it may be time to consider London as a target for property investment again, after a sluggish 2017. Real estate firm JLL reports that prime central London prices appear to be bottoming out, with sales activity on the increase:

  • Sales in the £5 million+ market increased by 31% between the third and fourth quarters of 2017
  • Prices of properties below £2 million remained stable, and 1.8% higher than at the same time in 2017
  • Prices in the £5 million to £10 million market fell by a modest 0.4% over the final quarter of 2017
  • Overall, average prices in prime central London fell by just 0.1% in 2017

These numbers indicate that the prime central London market is now heading in the right direction again, and this should be good news for the wider London market. And Douglas & Gordon agrees, predicting that price growth in central London could return to its long-term trend in 2018.

Yields in London starting to look attractive again

Now that rents in London appear to have reversed their downtrend, and with property prices subdued in the capital, rental yields will now start increasing. Confidence is beginning to return. This could be the golden opportunity that investors have been waiting for: interest rates are low, rents are bouncing, prices are bottoming out.

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Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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