Investors Target Properties in Central London

The hike in demand for houses and apartments to rent in central London has sparked a flurry of activity among investors looking to capitalise on the booming rental market by purchasing residential properties in the capital with a view to letting them out.

Fresh figures from the Council of Mortgage Lenders (CML) reveal that gross mortgage lending of £4.2 billion across 33,500 mortgages was advanced to buy-to-let landlords in the first quarter of 2013, up from £3.7 billion in the same quarter of last year.

Nearly half of this lending was for remortgage, rather than house purchase, which suggests that many existing landlords are seeking to add to their buy-to-let portfolios.

Paul Smee, Director General of the CML, commented: "The buy-to-let mortgage market is performing well, against a backdrop of robust landlord - and tenant - demand for good quality rental property. Loan performance compares favourably with the owner-occupier sector, and buy-to-let continues to grow as a proportion of the overall mortgage market."

Buy-to-let lending accounted for 13.4 per cent of total outstanding mortgage lending in the UK at the end of March - up from 13 per cent the previous quarter and 12.9 per cent at the end of the first quarter of 2012.

According to EA Shaw estate agency, a lot of this money is finding its way into the housing market in prime parts of the capital, reflected by a rise in the number of investors actively searching for houses and apartments for sale in central London.

Lisa Hollands, Managing Director of EA Shaw, said: "Reassured by the stability of the market, British buyers are now cherry-picking the best of London's prime property, targeting high value, exclusive homes. They are attracted to the 'collectors' items' – unique properties in the Capital in rare and sought after addresses.

In addition to a rise in the number of British people looking for apartments and houses for sale in central London, Knight Frank reports that more foreign investors are also taking a greater interest in London, particularly purchasers from Asia who are buying up property in central London and then putting it into use in the rental market.

 Analysts at the company say that demand will overtake supply in a matter of a few years, which is likely to trigger more interest and higher prices in the rental market as more first-time buyers are squeezed out of the home market and into the rental sector.

Knight Frank's London Development Report states: 'Investors have typically been more interested in a central location than an extra percentage point or two in annual yield. There is also potential for more capital growth, coming on the back of a 53 per cent rise in prices since the market trough in 2009'.

Leading estate agents Sandfords also believe that prime central London offers greater room for capital growth.

"Prime central London property is largely immune from short term fluctuations," said Sandfords' Andrew Ellinas. "The main reason is that a property in London has intrinsic value that is not dependent on buyer sentiment but its use as a place to live and do business in the most vibrant and cosmopolitan city in the world."

Increasing demand for rented property has pushed up average rents in recent years. This coupled with strong capital growth, has resulted in enviable returns for those who own property in prime central London.

Central London Property Boom Continues

Anyone searching for properties for sale in Central London will find that the list of homes available is falling, as a growing number of investors snap up rental investments in the capital. What’s more, the number of homes on the market that have had their asking price reduced at least once has fallen to its lowest level since late 2010 as confidence returns to the housing market, according to the latest research from property website Zoopla.co.uk.

The proportion of properties currently on the market with a reduced asking price now stands at 31.5 per cent, compared to 36.7 per cent a year ago. This suggests that fewer sellers are feeling pressured to cut their asking price in order to achieve a sale. This is particularly the case as far as houses and flats for sale in central London are concerned, with demand from investors soaring. 

Lawrence Hall of Zoopla.co.uk comments: "The number of price-reduced properties has fallen to its lowest since early 2010 indicating growing confidence in the market"

With residential property market conditions in London rapidly improving, more investors are actively looking to either enter the buy-to-let market or add to their existing property portfolios, in order to take advantage of the rise in the number of people looking for houses and flats to rent in central London.

The first ever Sequence lettings index shows that the number of new applicants registering with the company in order to rent a home in March increased by 21 per cent compared to the previous month, while the volume of properties to rent only increased by five per cent during the same period.

Stephen Nation, Head of Lettings at Sequence, commented: "We have seen a strong seasonal uplift in demand for rented accommodation with over 12% growth in the number of new tenant applicants, viewings and agreed tenancies."

He added: "Monthly Rents of £1,375 in London remain almost double the national average of £704."

Aside from solid rental returns, many property investors also want to take advantage of rapidly increasing home values in the capital, particularly in prime central London, where prices are appreciating by an average of £383 per day, according to Marsh & Parsonsin its Residential Investment Monitor Q1 2013.

Following a slowdown in both the sales and lettings markets during the fourth quarter of last year, the property firm report that the prime central London residential market has turned a corner, with positive growth recorded across all London regions, led by gains in prime central London.

Data provided by Marsh & Parsons shows that the average price of a flat in prime central London breached the £1 million mark for the first time, while the average price for prime residential property as a whole reached a new historic high of £1.53 million in Q1, leaving prices 6.1% above the previous market peak of Q3 2007. This translates to an average increase of £383 per day.

"Prime Central London is once again experiencing robust price growth, driven primarily by the supply drought and strong domestic demand, aided by a greater take up of the historically low mortgage rates," said Sue Foxley, Head of Research at Cluttons.

Moving forward, the housing market in prime central London, having successfully withstood the worst of the economic turbulence, is expected to experience further robust price growth, driven primarily by the shortage of homes on the market and historically low mortgage rates.

"Prime central London property is largely immune from short term fluctuations," said Andrew Ellinas of leading estate agents Sandfords. "The main reason is that a property in London has intrinsic value that is not dependent on buyer sentiment but its use as a place to live and do business in the most vibrant and cosmopolitan city in the world."

Some leading property experts expect to see home values in prime central London increase by in excess of 20 per cent over the next five years, and very few people would argue against that forecast.