Property investment areas in London

[Mollyeyes]

Hello,
Need your help please, anyone done this invested in a flat or house to rent out in London, what areas would you say are good to invest in and shall we invest in a new build flat?

Thank you

You need to check the market for a particular type of property and work out your costs (maintenance and professional fees) and then the rental yields. Are you clued up on income tax on rentals? Generally speaking, new build flats are rarely the best way forward.

Based on your other threads, aren’t you a first time buyer, though? You might struggle to get a btl mortgage if you don’t own your own place.

Hi JoJoSM2
We have existing property. If we buy less than 500k do we still have to pay stamp duty on buy to let? What other taxes will we have to pay, you mentioned income .

Thank you

It sounds like you don’t have a background in being a landlord given your comment about tax.

Have a read through this:
www.which.co.uk/money/mortgages-and-property/buy-to-let/becoming-a-landlord-ak37s4b81j0b

You need to really plan this, it’s not just what type of property in which area.

As you are aware London properties are generally very expensive, if you have investigated the costs perhaps have a word with a reputable letting agent as to areas, rent you can expect etc.

It might be better to start out somewhere with cheaper property.

Also I was having a chat with a mortgage manager yesterday. Working from home is going to be the thing and relocating workers into branches with space to distance.

Getting rid of offices in London is going to be a big thing so going forward this could reduce prices and rents.

@Mollyeyes Yes, you do have to pay stamp duty if it's a second property, despite the stamp duty holiday. You also have to pay income tax on the rental income. So, for example, if you're a higher rate tax payer (40%), you'd have to pay 40% tax on your rental income. So, your rental income would need to be significantly higher than the mortgage. You'd probably also want to use an estate agent to handle the contracts, and possibly day-to-day management, which would be significant additional cost. If you're still considering it, what's your budget? That will determine which areas are recommended. Though to be honest, I'm not sure how many areas of London have properties for sale where the mortgage would be significantly less than rental income, unless you have a huge deposit.

Under £500k you’d have to pay 3% stamp duty.

Nowhere is good at the moment. If you need to get a mortgage then you shouldn't do it at all due to tax changes - you will end up owing much more in tax than you make in profit.

Even if you can buy outright I still wouldn't. The rental market in London has collapsed due to Covid, it will go further down still due to Brexit, and further down still due to the imminent removal of the Section 21 eviction route. The regulatory framework is ever increasing and onerous. Most London boroughs have introduced licensing and any that haven't almost certainly will soon. The profit margins, even if you own outright, aren't great and house prices will almost certainly stagnate in the short to medium term and may well fall.

It was an amazingly easy and lucrative thing to do between 1990 and 2007. From 2007 to 2017 it was a lot less lucrative and a lot more difficult. Now I would advise no one to do it. Landlords are leaving the market in droves, with good reason.

Above advice is very good. In sum the government is looking for
landlords with several properties ideally larger corporations even.
With very dwindling supplies of affordable housing they need landlords that can weather the storm when tenants cannot pay etc which is more difficult when a landlord just has one property
Join the NLA (£80 pa ) tax deductible. They have online courses
and a helpline. Worth every penny.

I wouldn't buy a new build flat as BTL investment in any part of the country tbh. You'll spend a significant proportion of your time sorting out snagging issues, they do tend to lose value initially as you pay a premium for the newness and without exception the service charges are artificially low in the first year/two years to encourage people to buy; once they're handed over to a managing agent they skyrocket as the developer stops picking up costs.

And that's aside from the stamp duty/landlord tax/requirements for licensing, etc.

I agree with @thecatneuterer

My landlords sold up (to me!) for precisely the reasons above. They were havering for a long time but were put off by the CGT bill as they’d bought in 1997. (Rich guy problems). What swung it in the end was something really prosaic - ongoing maintenance issues that they couldn’t trust the agent with, and no time to carry out themselves.

Definitely not new build as they are known to be overpriced. Maybe something that's about 10 years old so all the little problems have been ironed out.

Make sure you understand exactly what you are getting into. We were unable to rent a house out during lockdown so had no tennants for several months (the last ones left in Feb and we put a new kitchen in). Luckily we have no mortgage on this property as it was inherited. But still had to pay Council Tax, insurance and so on so not cost free even when empty.

If you have no rent coming in for a few months, you need to be sure that you can easily pay the mortgage and bills without stressing about it. Or if you can, buy something you can afford outright.

Thank you everyone for your great advice. I think given all your feedback and weighing up everything it’s not good to go for BTL, the costs, ongoing maintenance, paying mortgage on empty property and hassle. There are so many flats going up in London and so much competition as well, iI will not do this now, thank you all x

Very wise OP. Are/were you aware of the tax changes? Basically the mortgage on a BTL isn't counted as a deductible expense. So imagine your mortgage interest payment is £1000 pcm, and the rent is £1500 pcm and other expenses are £200 pcm. In the old system your profit would be the rent, minus expenses, minus mortgage interest - so, in this example, £300 pcm. You would therefore pay tax on that.

Now you can't deduct the mortgage interest. So your profit would be classed as being £1300, and you would pay tax on that. If the rent is high, even if the mortgage payments are nearly as much, you could easily end up paying 40 per cent. Many Landlords find they have to pay many thousands of pounds more in tax than the total profit they make each year on the property.

Yields are too low..I have two rentals but obtained years ago...I do low rent and long contracts so no stress at all...I wouldn't buy now in London...I may look into Yorkshire in future as selling one house next year to release cash... yields are better and property cheaper .. this may be a retirement home for me so won't just focus on yields etc.

The yields are still not too bad it's the additional management charges and fees that claw into it leaving you with very little. Some 500k properties have fees of 6/7k a year! They are really high.

Given all the costs of BTL do you think it is still worth doing it to have an additional property anyway that you can sell in future as market value will probably go up? I know you have to pay capital gains tax.

@thecatneuterer

Very wise OP. Are/were you aware of the tax changes? Basically the mortgage on a BTL isn't counted as a deductible expense. So imagine your mortgage interest payment is £1000 pcm, and the rent is £1500 pcm and other expenses are £200 pcm. In the old system your profit would be the rent, minus expenses, minus mortgage interest - so, in this example, £300 pcm. You would therefore pay tax on that.

Now you can't deduct the mortgage interest. So your profit would be classed as being £1300, and you would pay tax on that. If the rent is high, even if the mortgage payments are nearly as much, you could easily end up paying 40 per cent. Many Landlords find they have to pay many thousands of pounds more in tax than the total profit they make each year on the property.

This was the reason I lost out on self employment coronavirus support, it meant I failed on the 50% criteria. I rent a flat out near Dagenham which has been a good investment area but can’t wait to be rid of the place. I have great tenants with a long contract but I’m always worried something will go wrong and there are always extra costs. In London you’ll have to be a licensed landlord so you’ll need to factor those costs in too. With management fees and insurances its only the equity in it that makes it worth keeping. It’s not a quick way to make money at all, you’ll get a very small amount each month that could easily be wiped out if you have bad tenants.

We are seeing buy to let flats in our zone 1 block come back into owner-occupier ownership.

I think BTL doesn't make economic sense anymore.

However, I would love to know what the parents of the students who've bought the last couple of flats do for a living!! I can barely afford my flat and I'm an NHS consultant.

Buying a flat for your student child and their flatmates can still make financial sense though, especially if they do a long degree or a postgrad, or stay on in a location after university for professional training. I paid £10,0000 a year in rent to live in a house-share with three other people, one of whom owned it. Her parents had withdrawn equity from their house to fund hers, on the basis that it meant they then didn’t have to fund her university costs. She wound up with a load of equity whereas the rest of us just ended up with student loans!

If you’re an accidental landlord you may find Air B and B or similar can make you more money with less risk, even with the 90 day restriction in London. There are even letting agents who have diversified into managing these guest rentals. City Relay is one.

Most leases prohibit short lets though, so even if it is allowed in your local borough your freeholder could take action against it.