Fierce Competition Sees Rents Soar In Central London

Rents have continued to soar in the capital's most desirable areas, fuelled by growing demand for properties to rent in central London, owed in part to a high level of fierce competition from frustrated would-be home buyers struggling to gain a foot on the housing ladder.

The typical rent in London rose by 6.2 per cent in February compared with a year earlier, according to the data from lettings network LSL Property Services - which owns chains such as Your Move and Reeds Rains.

The hike in rental values is largely due to the lack of homes on the market in relation to demand.

LSL director David Newnes said: "In the longer-term, the supply of rental homes will have to increase considerably to prevent monthly rent rises when the rental market re-enters its traditional peak season."

The property shortage in the rental market is owed mainly to a lack of house building, while many foreigners, who make up a significant share of those buyers taking advantage of attractive flats and houses for sale in central London, generally opt not to rent their homes out. 

"Wealthy foreign buyers who own properties in these areas [central London] rarely rent them out. This has cut the pool of homes available to renters and contributed to sharp rental prices increases," said Ludlow Thompson director Stephen Ludlow.

New research by Ludlow Thompson shows that the average cost of primarily located flats and houses to rent in central London has now soared past the £5,000 per month mark.

                          

New data published by Ludlow Thompson reveals that rents in SW1, which includes the elite enclaves of Belgravia and Knightsbridge, are the highest, averaging £6,171 a month. This is followed by W1, which covers Mayfair, Marylebone and Soho, where rents are £5,493, while rents in Chelsea, SW3, have reached £5,442.

The success of the prime central London property market over the last five years is creating plenty of fresh buy-to-let investment opportunities, according to leading estate agents Sandfords.

The company is bullish on the private rented sector, pointing to the latest census figures that show the rising generation is moving to city centres to live.

"They [people] cannot afford to buy and are increasingly deciding to rent long-term," said Sandfords Director, Andrew Ellinas.

He added: "The predicted capital growth in prime central London combined with the rental growth caused by the high demand and relatively low supply is a clear investment opportunity."

The success of the housing market in central London is likely to have a positive knock-on effect on the wider property market in the capital, particularly in those secondary areas on the edge of central London, such as St John's Wood, Regent's Park and Primrose Hill.

Brendan Cox, Managing Director of Waterfords estate agents, commented: "There is no doubt that London has to be one of the top investment destinations for anyone looking for a safe-haven asset right now."

As rents soar and deposits to buy property become even further out of reach, the government needs to look seriously at how it can help more people buy property in central London, such as make housing more affordable. In the meantime, landlords will continue to reap the rewards of existing market conditions.

Golden opportunity to invest in property

With more people now disillusioned with pensions, stocks and shares often fluctuating like a very big rollercoaster, with more downs than ups in recent years, and savers receiving dismally low returns from banks and building societies, more people have opted to invest in gold in recent years, which has been regarded as a safe place to preserve wealth. But this could be changing, according to leading Maida Vale estate agentsSandfords. 

Andrew Ellinas, Director of Sandfords, which also has offices in Marylebone, Regent’s Park and Primrose Hill, points to the fact that over the last year, the value of gold has fallen by 2.3 per cent. In stark contrast, the value of property in prime central London continues to rise.
 

With the supply of properties for sale in Fitzrovia, Mayfair, Knightsbridge, among other prime London districts continuing to fall short of demand, the price of London’s best residential properties has increased for an unprecedented ten quarters in a row, the latest figures from Savills show. 

The estate agent’s prime London index, which covers homes with an average price of £3.5 million, shows that the average price of a home in this price bracket has increased by 17.6 per cent since the end of 2010.
 

Yolande Barnes, Savills Director, said: “In historic terms, this rate of growth looks steady for a prime residential market and much less volatile than some other prime world markets. It flies in the face of those who claim the market is overheating.”
 

The housing market in prime London has been supported by an influx of foreign buyers, due to the weak pound and the eurozone crisis. This has largely offset the impact of the Chancellor’s stamp duty raid on £2 million-plus homes last year.
 

Dominic Agace, CEO of Winkworth, commented: “Winkworth’s central London offices have for some time been experiencing growing interest in prime London properties from international buyers. With a favourable geographic location between the U.S. and Far Eastern time zones, and a track record as a safe investment market, demand will always be high.”

A glance at the market in prime central London suggests that a mini boom is occurring which could eventually benefit homeowners across the capital and beyond.
 

Property prices across much of North West London, for instance, are catching up with central London as investors look for property investment opportunities outside of central London.


Many landlords are opting to take advantage of high demand among tenants for attractive properties to rent in St. John's wood, Primrose Hill, Swiss Cottage, among other surrounding areas. 

David Brown, Commercial Director of LSL Property Services, said: “As long as rents remain close to last year’s record highs there’s a strong incentive for landlords to invest in the private rented sector.”
 

With a growing number of people struggling to get a foot on the housing ladder, demand for rented accommodation is likely to grow further, with the hike in the volume of people searching for rental properties likely to create plenty of fresh buy-to-let opportunities for landlords.

More Properties for sale in North West London Needed

Theon-going shortage of residential properties in prime central London in relation to record high demand, fuelled by a flurry of international buyers, is continuing to push property prices higher. The latest Knight Frank Market Update shows that the  average price of a home in the heart of the capital increased by 0.9 per cent in January, compared to just 0.2 per cent across the UK as a whole, taking the annual rise in prime central London to 8.4 per cent.

Demand for residential properties in central London has been boosted in recent months by the draft Finance Bill which gave some clarification on the ARPT, which helped offset the downturn in sales witnessed for much of last year.

The weak pound, solid rental returns and good prospect for capital growth have also helped to boost demand, particularly among foreign buyers.

Peter Rollings, CEOMarsh & Parsons, commented: "The relative shortage of stock sees house prices in the capital setting new records according to Nationwide. Demand is coming from both home and abroad and is set to continue with the much anticipated return to more seasonable Spring-like weather."

This strong demand in central London is expected to ripple out to other parts of London, especially in North West London, where some of the most desirable districts in the capital are situated. The concern is that there are simply not enough properties for sale in North West London, due to a general housing shortage. 

Andrew Ellinas, Director of Sandfords, said: "The success of the prime central London property market over the last five years is creating a wave of price rises in nearby areas as people move further afield in search of value." 

Ellinas reports that there is a particular shortage of properties for sale in St. John's wood, Primrose Hill and Maida Vale, traditionally regarded as outside the prime central London zone.

"These areas are now developing into an 'outer prime London' market," he added.

Strong prospects for capital growth is an attractive proposition for property investors, but it is the lure of solid rental returns that far outstrip low saving interest rates, which ultimately appeals to investors, thanks to strong demand for properties to rent in North West London. 

David Whittaker, managing director at Mortgages for Business, said: "Tenant demand for residential property is ballooning thanks to the lack of mortgages available to first-time buyers. Every month more and more would-be buyers are being forced to rent, and this is pushing up demand to astronomical levels, producing very attractive gross yields for landlords as a result."

In fact, 61 per cent of private and social housing tenants in England do not believe that they will ever be able to purchase a home, mainly due to affordability constraints, according to Castle Trust.

Sean Oldfield, chief executive officer, Castle Trust, said: "Many people are either unable to get on the property ladder or stuck in their current home despite interest rates still being at an all-time low. Schemes like the Government's Funding for Lending are helping to boost borrowing options but the market still needs innovative lending products."

Castle Trust's analysis shows that owner occupation in England has fallen by 200,000 from 14.6 m in 2008 to 14.4m in 2012. Its data also indicates that there has been an increase of 23 per cent in the number of people who are choosing to rent in the private sector, with 3.1 million renters in 2008 rising to 3.8m renters in 2012; the rise in rental demand is a highly attractive proposition to buy-to-let investors.

Investors Taking Advantage Of Greater Demand For Rental Properties In Central London

With tenants paying an average of £64 a month more than they were last year to rent property in the capital, investors have moved swiftly to cater for growing rental demand, particularly in central London.

With more tenants competing for properties to rent in Fitzrovia, Mayfair, Marylebone, St John’s Wood, among other highly desirable areas, rents in London have increased significantly over the past year.  

The LSL Property Services’ monthly Buy-to-let index found that while average rents across England and Wales dipped by 0.1 per cent in February, reaching £731 a month, rates in the capital rose by 0.5 per cent to£1,092, from £1,086 in January.

The increase contrasts with a 0.2 per cent fall in rents last month and means rents in the capital have risen by an impressive 6.2 per cent annually, equivalent to £64 and well above the national average of 3.3 per cent.

David Newnes, Director of LSL Property Services, said: "While a modest increase in supply has had an effect, in the longer-term, the supply of rental homes will have to increase considerably to prevent monthly rent rises when the rental market re-enters its traditional peak season."

The hike in rental prices means that any decent houses or apartments for sale in central London are generally snapped up swiftly by property investors, particularly those specialising in acquiring buy-to-let units.

Rental demand for property in central London is being driven primarily by young professionals who prefer to rent as a lifestyle choice, while others simply cannot afford to get a foot on the housing ladder. Many former homeowners have also become renters since the housing collapse. They either want no part of owning or are forced into rental accommodation because they cannot qualify for mortgages.

AndrewEllinas, Director at Sandfords, commented: "Property economists are also bullish on the private rented sector, pointing to the latest census figures that show the rising generation is moving to city centres to live. They cannot afford to buy and are increasingly deciding to rent long-term."

While the cost of homeownership beats renting, investor demand for apartments and houses for sale in central London is driving up home prices.

Property prices are also being pushed higher by a lack of supply in relation to high demand, owed in part to stringent planning controls and the lack of land for residential development in central London.

Over the past five years the London property market has outperformed the national average, with property prices in the capital having risen by six per cent over the period compared with a decline of 11 per cent nationwide, according to the estate agents Knight Frank.

Capital gains in central London have been much higher: According to Knight Frank, property prices in London’s most expensive residential boroughs have soared over the past five years. Home prices in Kensington & Chelsea, for instance, have appreciated by 37 per cent over the past five years. The company points out that prices in such prime areas now show a closer correlation to prime regions in global cites such as New York or Hong Kong than to prices in Manchester, say.

Central London property prices are ultimately being pushed higher by greater demand from homebuyers, particularly international property purchasers who make up a significant share of all buyers.

Lindsay Cuthill of Savills told the press: "It is the strength of demand from overseas buyers that has driven up prices in central London boroughs and underpin this market."

It may not yet be full steam ahead for the national housing market, but the London property market continues to go from strength to strength; it truly is in a league of its own.

High Buyer Demand On The Back Of Low Mortgage Rates

Many property experts project that residential prices in the capital will rise in the short to medium term, on the back of low mortgage borrowing rates and a rise in the number of international buyers looking to acquire property in London, widely considered to be the ultimate safe haven market.

Mortgage borrowing rates have fallen sharply in recent week, with some two-year fixed rate deals starting from as low as 1.99 per cent, on the back of the Bank of England's Funding for Lending Scheme, which was introduced last year.

There are growing signs that government efforts to boost mortgage lending are trickling down to people with smaller deposits, reflected by the fact that there has been a sharp rise in the number of first time buyers.

November's mortgage lending data from the Council of Mortgage Lenders (CML) shows that the volume of first-time buyers increased by 24 per cent year-on-year, with a total of 21,700 loans advanced to first-time buyers, worth £2.7 billion, in November, marking one of the highest monthly totals seen in the past three years.

For the second consecutive month, first-time buyer loans accounted for 41 per cent of all home purchase loans, compared with the longer-term average of 38 per cent.

"Encouraging activity in the first-time buyer sector in November contributed to an uplift in house purchase lending, suggesting the underlying trend for year-on-year increases should continue," said Paul Smee, director-general a CML.

Attractively low mortgage borrowing rates has led to a rise in the number of homebuyers searching for a house or apartment for sale in Little Venice, St John's Wood, Primrose Hill, Marylebone, among a host of other desirable locations in the English capital.

"All these areas have seen surging prices over the last year," said Andrew Ellinas of leading estate agents Sandfords.

He added: "The best houses and apartments in these areas now represent a safe and secure place to store funds as well as a base in some of the loveliest areas in the most vibrant, cultured and cosmopolitan city on earth."

Whether talking to Mayfair estate agents or Marylebone estate agents, or any agent in a sought-after part of London for that matter, they will all agree that London is proving a wealth magnet thanks to its safe haven status.
                              

London's political and relative economic stability has helped to attract a high number of overseas property investors in recent years, as they seek to preserve wealth in light of political, economic and financial upheaval in their home nations, helping to push property prices higher.

Yet, despite the surge in London property values, the weak pound, ironically, has actually made acquiring property in London relatively cheaper for some foreign buyers, particularly those from Asia.

Shirley Humphrey of Harrods Estates said: "The prime central London residential market is as popular as ever with international investors. While interest from Russian and Middle Eastern investors remains strong, increasingly, buyers from Hong Kong and Singapore are making a significant impact."

Wealthy overseas buyers generally look to buy property in some of London's most exclusive areas, which explains why so many look at property for sale in Fitzrovia, Chelsea, Mayfair, Hyde Park, among other desirable districts.

International purchasers, especially those from Asia, are particularly interested in acquiring new build homes in the capital.

Trish Henderson, Sales and Marketing Director, of Taylor Wimpey Central London, said: "Investors from the Far East, in particular Singapore and Hong Kong, have been key drivers in the prime London new build residential market. These buyers are looking for solid investment properties, but more and more, properties in areas that offer a great range of lifestyle and education options for their families.

As we start the new year confidence to the residential property market appears to be improving, helped in part by low mortgage rates. Many housing experts predict that transaction levels will continue to increase in many parts of the country and this in turn could lead to significant capital growth.

Greater Rental Demand for Properties in Fitzrovia

With demand for rental properties in central London continuing to rise, the cost of property to rent in Fitzrovia has increased to an all-time high.

Soaring demand and increasing rental values has alerted a number of astute property investors, with many actively looking to add to their buy-to-let portfolios.

The latest market data from the Association of Residential Lettings Agents (ARLA) has revealed an upward trend in landlord investment over the past 12 months. 

 

The average number of buy-to-let properties owned by landlords peaked at eight in the final quarter of 2012, up from seven at the beginning of the year. The apparent rise in confidence in the market also prompted increased landlord activity, with 29 per cent stating they have bought a property in the past year compared to 25 per cent at the start of 2012.

The increase in landlord confidence is also reflected in the rise in the value of buy-to-let mortgages, with an eight per cent rise in the final quarter of 2012 totalling £4.2 billion according to Council of Mortgage Lenders.

Ian Potter, Managing Director of ARLA, said: "The latest data from ARLA suggests that landlords are carefully but concertedly increasing their portfolios; activity is returning to the buy-to-let market. Whilst many investors naturally remain cautious, the climb to an average of eight properties per landlord shows that 2012 was a strong year for the PRS."

With more investors acquiring residential properties in prime central London, which includes Fitzrovia, housing stock levels in the heart of the capital have declined by around 25 per cent at the start of 2013 compared to the same period last year, according to property consultants Cluttons.

 

The company says that it is witnessing extraordinary levels of competition between domestic and international buyers for the limited property for sale, on the back of record high levels of demand for properties to rent in central London, including houses and flats to rent in Fitzrovia.

Charlie Noel-Buxton, partner for residential sales at Cluttons, said: "House hunters in prime central London, starved of options, are going to great lengths to secure a property when it comes onto the market, particularly those on the most desirable roads."

Research shows that there is not just a shortage of properties for sale in Fitzrovia, among other sought-after areas in central London, but greater rental demand means that there are also now fewer homes to let, forcing more tenants to consider flatsharing in order to secure accommodation in the capital.

In the past year, the number of bedrooms available for flatsharers to rent has fallen by over two fifths (44 per cent), according to a study conducted by flatsharing website easyroommate.co.uk. Over the same period demand has remained steady and this has put greater strain on an already stretched supply of rooms. This supply and demand imbalance has caused rents to rise 3.6% (£415 to £430 per month) since January 2012.

Yet the firm estimate that the cost of flatsharing in the UK will increase by a further 4.3 per cent by the end of 2013, on the back of falling numbers of rooms available to rent and consistent demand from rentersin the flatshare market.

Jonathan Moore, Director at easyroommate.co.uk, said:"The last few years have been tough for renters and 2013 will be no different. Falling numbers of rooms available to rent is putting strain on supply and leading to higher and higher rents. Flatsharing remains a much more cost-effective option for renters but anyone hoping to rent a room this year needs to be aware of the rising costs and factor this into their budgeting."

The general shortage of flats and houses to rent in Fitzrovia in relation to increasing demand is likely to push rental values in the area even higher over the next few months, creating fresh investment opportunities for landlords in the process.

"The success of the prime central London property market over the last five years is creating a wave of price rises," said Andrew Ellinas of leading letting agents Sandfords.

He added: "Property economists are also bullish on the private rented sector, pointing to the latest census figures that show the rising generation is moving to city centres to live. They cannot afford to buy and are increasingly deciding to rent long-term."

The booming London property investment market is expected to attract even more investors seeking solid rental returns and good prospects for capital growth.

Little Venice Continues to attract thousands of Tenants

 Mortgage borrowing rates have declined substantially in the past few weeks, with some two-year fixed rate deals available at just 1.99%, on the back of the Bank of England's Funding for Lending Scheme, which allows finance giants to borrow up to £60 billion at a low interest rate on the condition that it is loaned to homebuyers and businesses.

But despite cheaper mortgage borrowing rates, many first time buyers are still unable to raise the large deposits required to buy property, particularly in London, where property prices are the most expensive in the UK.

Many would-be homebuyers have therefore been forced to focus on renting property in the capital, with highly desirable areas naturally attracting the most interest. Little Venice in Maida Vale, west London, very much falls into this category.

Little Venice, located in south Maida Vale, is one of London's prime residential areas and offers residents and visitors plenty to see and do. Aside from the local canal, it is renowned for its shops and restaurants, as well as the Canal Cafe Theatre, the Puppet Theatre Barge, the Waterside Café and the Warwick Castle pub. A regular waterbus service operates from Little Venice eastwards around Regent's Park, calling at London Zoo and on towards Camden Town.

The area's attractions and scenic setting has helped to fuel demand among those seeking a flat or house to rent in Little Venice, pushing rents higher in the process. 

But high rents have persuaded many property owners to remove their flats and houses in Little Venice from the sales market and let them out instead. This is actually now placing downward pressure on rental values in the area; welcome news for tenants looking for a house or flat to rent in Little Venice.

"Unfortunately, the upsurge in properties coming onto the rentals market has meant that rents are now under pressure," said Julia Garber of Maida Vale estate agents Sandfords. "Tenants are demanding more realistic rent levels."

Little Venice is not the only area to see rents come under pressure, despite attracting high demand from renters.

Rents in December fell for the second month in a row as landlords, according to the latest Buy-to-Let Index from LSL Property Services.

A survey conducted by LSL, which owns letting chains Your Move and Reeds Rains, found that the average rent in England and Wales fell by 0.9 per cent in December to £734 per month, based on an analysis of 18,000 properties.

Although falls were led by decreases of 1.7 per cent in eastern England and the North East, they were closely followed by London where rents fell by 1.5 per cent,

"Tenants were in a stronger bargaining position as landlords reduced rents to fill empty properties in the slower winter months," said David Newnes, director of LSL Property Services.

But as the New Year progresses the underlying weakness in the mortgage market will mean competition will heat up once more, helping to eventually push rent higher once more.

He added: "While rates are coming down for those with large deposits, extremely low saving rates are hitting those still trying to pull together a deposit – a problem accentuated by the record low base rate."

With rental values widely expected to rise again, there are emerging signs that more landlords are seeking to take advantage of favorable market conditions by adding to their buy-to-let portfolios.

The most recent figures from the Association of Residential Letting Agents (ARLA) show that rental properties continue to be an attractive investment for landlords.

ARLA research found that the average number of buy-to-let properties owned by landlords peaked at eight in the final quarter of 2012, up from seven at the beginning of the year.

Ian Potter, managing director of ARLA, said: "The latest data from ARLA suggests that landlords are carefully but concertedly increasing their portfolios; activity is returning to the buy-to-let market."

Bob Pannell, chief economist at the Council of Mortgage Lending, reports that many property professionals are feeling more positive about the UK housing market and wider economy than a year ago, despite economic headwinds and downside risks.

"House purchase activity was robust in the fourth quarter, on the back of better mortgage availability and pricing, and we expect this to continue over the coming months," he said.

As demand from homebuyers return and the Funding for Lending Scheme gains momentum, it presents investors with a real opportunity to secure a long-term, low-risk property investment. But for many would-be homebuyers, the rental market remains the only option for now.