Property investment in London can be a lucrative way to generate additional income, by purchasing buy-to-let properties in prime locations, as well as in desirable up-and-coming boroughs across the city.
Property investment agents like Black Brick offer a suite of property investment services to help you maximise your yields and capital gains. Here are some insights on how to do just that.
Our property investment agents take a keen interest in the history of London property investment. By learning from the past, we can make more accurate predictions about future trends – and where to find the best returns on investment.
Investment trends in London real estate are often tied to the wider economy, but can also emerge independently of financial trends.
For example, we see changes in how buyers invest in multiple properties, from multiple individual purchases, to bulk buys, to off-plan property investments.
Just as the housing market can rise, it can also fall. In 1979, Margaret Thatcher raised interest rates to 17% in order to combat a 25% rate of inflation. This led to a spate of repossessions and falling house prices.
With inflation relatively high for much of 2023, the Bank of England has raised rates steadily over a number of months. This may yet have an effect on property prices as we move through 2024.
A property boom is the time to make the most capital gains, and often follows a slump – just as it did in the early 1980s. By the end of the decade, the housing market had risen substantially as it recovered from those high interest rates.
The early 2000s saw a further rapid rise in house prices, until the sub-prime lending crisis and subsequent credit crunch of 2007-08. The spike in activity following the end of the COVID-19 lockdowns took property prices to a new peak, and recent falls have still seen selling prices at historic highs.
If you want to maximise the value of property investment in London, there are some steps you can take no matter what stage of the economic cycle the housing market may be at.
Property investment agents work for you to deliver positive return on investment. A property manager can also maximise your rental yields, while relieving you of the hands-on part of your landlord duties.
Think about the attraction of a particular location for desirable tenants. Good public transport links, local amenities and access to good schools can all help to secure good long-term occupants for your buy-to-let investment properties.
London property expert Camilla Dell from Black Brick explains some of the non-negotiables when it comes to location: “The old saying “location, location, location” is never truer than when buying property as an investment. If you plan to have your investment property rented out consistently to good quality tenants, then ensuring you buy in the right location is critical. Corporate tenants and students value being walking distance from good transport links, a local high street and in a well-run, well managed property. Families will prioritise being close to top rated primary schools and having access to outside space. So thinking about your target market is also important. ”
Look for up-and-coming locations, regardless of the macro property market. Pockets of growth and areas subject to renewal and modernisation can all drive stronger yields.
Renovating a property is a good way to increase its value and maximise returns. Modern, desirable rental properties can attract the highest rents, and you should also see greater capital gains on the resale market. Three key considerations buyers looking to refurbish a property are recommended to take into account:
“If you plan on buying a property that will require refurbishment then it’s important to make sure you understand 3 things; 1) how much will the renovations cost 2) how long will the work will take and 3) what permissions do I need to obtain. When buying for investment it’s important to plan and budget carefully. Using a specialist staging company to assist with furniture can also help achieve higher returns.”
One question that is asked often is whether you should furnish a property to maximise rental returns. A property investment agent can help you to decide, based on the prevalence of fully furnished rental properties in the area, and the relative profitability of spending on furniture versus renting unfurnished.
Property investment agents need to know how the market is performing in any given area, in order to find the best investment properties for their clients.
In this brief overview, we’ve used data from Rightmove to look at the current selling prices of prime London property, the types of property that are in highest demand, and recent trends in prime London purchase prices.
(Source: Rightmove using HM Land Registry data, all figures correct as of October 12th 2023.)
Mayfair property sold for an average of £6,355,827 in the past 12 months, making it one of the most expensive places in the capital to buy a home.
However, prices have fallen in recent years, and are currently down by 4% compared with 2022, and 16% lower than their peak of just over £7.5 million in 2019.
Most property investment in Mayfair is in the form of flats, with an average selling price of just over £6.3 million. Terraced properties represent fewer sales, but higher value, at £6.76 million.
Kensington property is diverse, with flats, terraces and semi-detached houses averaging £2,322,178 in 2022-23.
This overall average is down by 5% year-on-year, but up by 4% from 2020’s figure of £2.24 million.
Property investment in Kensington is split across the different property types. Most transactions involve flats at an average selling price of £1.56 million. But most of the value can be found in terraces (£4.19 million) and semi-detached houses (£9.69 million).
Again, property investment in Chelsea is spread across flats, terraces and semi-detached houses, with an average selling price of £2,229,292.
This is a fall of 9% compared with the previous year, but up slightly from just under £2.2 million in 2014.
Like Kensington, most transactions involve flats, at an average value of £1.5 million. Terraced properties fetch an average of £4.45 million, and semi-detached homes sell for £9.23 million on average.
Property investment in Knightsbridge is less widely spread. On average, Knightsbridge real estate sold for £2,886,197 in the past 12 months.
This is a double-digit drop year-on-year, with prices down 17% from 2022, and 14% lower than the area’s peak of £3.37 million in 2014.
While there are different property types to consider, there is less variation in selling price. In the past year, Knightsbridge flats averaged £2.24 million, detached properties £3.98 million and terraced houses £4.83 million.
If you’re interested in property investment in Marylebone, expect to pay an average price of £1,909,201 for a home in the area.
This is an 11% fall year-on-year, and is down by 7% from £2 million in 2020.
Flats in Marylebone account for most transactions, at an average of £1.73 million. Detached properties sell for an average of £1.5 million, while terraces bring in nearly £4 million on average.
There are plenty of areas for property investment in London outside of these prime central locations, with prices currently being driven by demand from single family occupants.
Just some of the key locations on the present market include several south-west London areas:
All of these can offer advantages over the highest-priced prime central London locations for property investment. For example, single-family tenants tend to stay in the property for longer, reducing losses due to void periods.
With a climate of rising interest rates, we have seen more families look to rental properties in London boroughs, increasing demand and driving yields higher than those scene in prime London postcodes.
There are many strategies that can help to maximise the value of property investment in London. Here are a few final things to consider when working on your prime London property portfolio.
Be savvy when renovating a property to add value. It’s important to make the property desirable, but your choice of fixtures and fittings should be objective and profit-driven.
That doesn’t mean cheap – a high standard can drive higher yields – but you should shop with your head, and not with your heart as you might when refurbishing your own home.
Buying at auction is a good way to build a portfolio and get property below its market value. If you’re looking to invest in multiple properties, auction can be a good way to do that too.
Make sure you fully understand the auction process – and the traditional property buying process – so that your investment isn’t undermined by any unseen pitfalls.
Do you plan to make your profit from rental yields, capital gains, or a combination of both? This can affect your buying decisions, for example whether you choose a property to refurb quickly and sell on, or one you intend to rent out long-term.
If you’re combining both forms of property investment, familiarise yourself with some of the unique aspects of selling a buy-to-let property, so you can manage your portfolio effectively over time.
Finally, always stay vigilant to any existing and emerging barriers or challenges that could impact on your returns. The property market is constantly changing, so it’s important to keep learning.
A buying agent like Black Brick can help you with this. Our real-time market insight and property investment services put our clients’ interests first, to deliver maximum value from rental and resale, even in a challenging and turbulent economy.
We would be delighted to hear from you to discuss your own property requirements. For a non-obligatory consultation, please contact us.
