London can be a difficult place to find good buy-to-let investments. High property prices in sought after areas often mean lower rental yields. Here we look at which areas give the best return and offer some tips to help you choose your investment property.
Buy to let landlords have certainly felt the impact of tax and legislation changes over recent years and may be wondering if residential letting in London continues to be a good investment. Added to this, rental yields in London are lower than in other areas of the UK. In Totally Money’s Buy-to-Let Yield Map 2019/2020
no London postcodes made the top 25 buy-to-let areas.
However, London is an attractive investment location for many buy-to-let landlords owing to its impressive capital gains and strong demand for rental properties. A new study from CBRE estimates that private renters now account for 30% of all households in London, which equates to roughly 2.7 million tenants. With rising property prices putting homeownership out of reach for many, demand for rental accommodation is only expected to rise.
To assist your decision in investing in London residential property, we take a look at the best areas for buy-to-let in London.
Best buy-to-let locations in East London
East London offers the highest rental yields, according to the data from Totally Money. The E12 postcode, incorporating the areas of Manor Park, Little Ilford and part of Aldersbrook, tops the table of buy-to-let areas in London. Here average yields are just over 6%.
Seven of the top 20 buy-to-let postcodes in London are found in Romford in East London where average yields are typically between 4.6% and 5.5%.
Best buy-to-let locations in South London
South East London also provides excellent investment opportunities. SE17, incorporating Walworth and Newington, ranks second in the best London buy-to-let areas. Landlords can expect to achieve yields around 5.75%.
SE11 (Kennington and part of Vauxhall) and SE22 (East Dulwich, Peckham Rye, Loughborough Junction and Herne Hill) take 7th and 8th place respectively. Rental yields in these areas are around 5%.
South West London doesn’t fair so well with four of the 10 worst buy-to-let postcodes in London. Here high property prices bring average rental yields down to around 2% to 2.5%. However, South West London is a perennially popular place to rent, here landlords can enjoy a constant stream of suitable tenants reducing the possibility of their properties lying vacant.
Best buy-to-let locations in West London
West London contains some of the most sought-after addresses in London from the swish apartments of Mayfair to Kensington's high-class residential properties. Properties in these west central areas cost upwards of £2.5 million on average and so rental yields tend to be at the lower end, research from Totally Money calculated average rental yields between 2% and 2.5%.
However, look further out and there are good deals to be found, for instance, Hammersmith has average rental yields around 5%.
Best buy-to-let locations in North London
North London still offers some decent investment opportunities despite three of its postcodes making an appearance in London's 10 worst buy-to-let areas.
Edmonton (N18), ranks 10th in Totally Money’s top 20 buy to let areas, boasting average rental yields of around 5% and Hampsted (NW3) provides good opportunities with average yields of just over 4%.
What to look for when purchasing a buy-to-let property in London
To help you decide if a location is right for your buy-to-let project, use our checklist of what to look out for when choosing your investment.
- Avoid traffic hotspots - Go back a street from the main road, quieter streets with less traffic often hold their value better and are more attractive to tenants.
- Look to the future - Do your research on any planned regeneration schemes in the area and think about the impact on the property you’re considering, good and bad. Will the plans bring better facilities, or mean noisy works for years to come that will deter renters?
- How are the schools? - Houses close to outstanding state, and well-regarded independent, schools will always be popular with renters and retain their value – but do your research. If you’re targeting families looking at popular state schools, find out how close you need to live to have a realistic chance of a place.
- What are the main attractions? - Look at properties with good amenities close by. Attractive bars, restaurants and shops can all make a place appealing to tenants. Factors like a corner shop, neighbourhood pub and coffee shop can also give a particular street the edge.
- How is the transport? - Be aware of the property’s walking distance to tube or trains stations and the bus routes it’s served by.
If you’re considering purchasing a buy-to-let property in the central London, we’d be happy to discuss the merits of different locations and share our many great properties. Contact us today to find out more.