London Property Investment Guide
Given the recent turbulence in the world economies, property in Central London has been increasingly viewed as a safe haven by both domestic and international investors. Although the London property market can go down as well as up, historically it has followed an upward trend and has performed especially strongly in recent years.
Over the last 20 years, Fraser & Co has acquired a great deal of expertise in the property investment market. Whether you are seeking to acquire an individual property, a block of apartments, a joint venture partner, or wish to buy several units within one building, we can provide expert advice to assist with your decision-making. As one of Central London’s leading estate agents, we can also make introductions to developers, banks and finance houses specialising in residential loans, and to furnishing companies, property tax accountants and solicitors.
Two sectors that have performed particularly well in the last few years in terms of both capital appreciation and ease of finding tenants has been the individual house market and new developments in London.
Family houses in key London areas such as Regent’s Park, Hyde Park and St. John's Wood are highly sought after by large corporations for their staff and Fraser & Co can assist you in a property search service to suit your property investment requirements.
Investing in new developments in Central London has also become increasingly popular as homes in such schemes appeal to busy executives looking for convenience, security, luxury accommodation and possible parking and are therefore comparatively easy for investors to rent out.
Assess what you can afford
If you are hoping to finance your purchase with a buy-to-let mortgage, most lenders currently require a minimum deposit of 25%, so you will need to have adequate funds set aside for this. The lower the LVR (loan to value ratio) the less chance you have of going into negative equity if prices ever plummet.
Whatever your individual circumstances, you should always aim to buy a property within your means. The income you generate from the rent should ideally be more than the total outgoings of the property such as mortgage repayments, service charge fees, ground rent, insurance, agency fees, etc.
Capital growth vs yield
When selecting a property for investment purposes, it’s sensible to consider the rental yield and the subsequent income the property is likely to generate and weigh this up against the property’s potential for long-term capital growth, which is often the primary reason for investing.
Rental yield is calculated by dividing the forecast annual rent by the purchase price and the higher the gross yield the better, although it’s the net yield after all costs have been deducted from the rent that ultimately determines the level of income you will receive from the property. If a property has great potential for capital growth but the rent won’t cover the costs, you could be putting yourself at risk if your financial circumstances change and you are unable to make up the shortfall. However especially if the property is in an up-and-coming area that is likely to see major price rises, your investment could prove very lucrative in the long term. As the area prospers and becomes more desirable, the rent is likely to rise as well as the value of your asset. Fraser & Co has a great deal of experience when it comes to spotting up-and-coming areas and we are always happy to offer investment advice to help direct your search.
UK investors are expected to pay tax on any profits made from a buy-to-let investment, after any interest payments and running costs have been deducted. Tax should always be taken into account when calculating your return on investment.
Overseas investors should register with the Inland Revenue to obtain a FICO number (NRL1 form), which enables you to submit your own tax returns, offsetting outgoings such as mortgage interest, agency fees, etc. against rent received. Fraser & Co can assist with this if required. If an FICO number is not obtained, by law agents must deduct 23% of the rental income at source. Tax laws relating to overseas investors are constantly changing so if in doubt it’s always sensible to consult a tax expert before acquiring a property.