As seems to be all the rage at the moment – with Jeremy Corbyn asking the Prime Minister question via email at Prime Minister Question Times – on this week’s London Property blog, I’m going to answer a question that was was emailed to me from a potential buy-to-let landlord in London last week.
A nice chap who lives in Chelsea, and it turns out, after having a coffee with him, he works in IT, has a spare bit of cash now the kids have flown the nest and was considering purchasing his first buy-to-let property in a BS postcode.
His main question was: “Do I buy a freehold house or a leasehold flat in London?”
Most people will say freehold every time, because you own the land. However, it’s not as simple as that.
The definitive answer though is to research what London tenants want in the area of London they want.
The tenant is ultimately your customer, and, if they don’t want to rent what you decide is best to buy, then you’re not going to have a successful buy-to-let investment in London.
Starting with the tenant in mind and working backwards from there, you won’t go far wrong. In a nutshell, find the demand before you think about creating the supply. This is an area our letting agents regularly advise our property landlord clients on.
Leasehold flats and apartments in London are excellent in some respects as they offer the buy-to-let landlord certain advantages, including the fact a flat can be cheaper to buy.
Yields can be quite good, offering better cash flow.
The building will already be insured and although there is a service charge, it’s still for a service at the end of the day and that cost is spread between many others (i.e. when your freehold house roof goes, its falls 100% on your shoulders) and one of my favourites is that there is often no garden to maintain or garden fences to replace.
However, some leasehold flats in London can suffer from poor capital growth.
Some leasehold properties have no cap on the level of the service charge and it may get out of control. The length of the lease will significantly affect value if not renewed before it gets too short.
Thankfully there’s not many, but some London apartments and flats have burdensome clauses.
Finally, with leases, there can be sub-letting issues, which means you can’t let them out.
So what do the numbers look like? This is a key area our property agents in London consider.
Well since 2003, the average freehold property in London (detached, semis and terraced) has risen from £170,297 to £290,654, a rise of 71%, whilst the average London leasehold properties (flats and apartments) have gone up in value from £146,692 to £200,396, a more mediocre rise of 37%.
As a leading letting agent in London, I was interested to note that of the 40,401 rental properties in the London City Council area that the Office of National Statistics believe are either let privately or through a letting agency, 25,681 of them (or 63.6%) are apartments.
However, there are only 61,863 apartments in the whole council area (including owned, council-rented, and privately-rented), which represents 33.9% of the whole housing stock.
This really intrigued me that there’s a high proportion of London’s leasehold apartments and flats rented to tenants compared to detached, semi’s or terraced houses.
As our letting agents advise, every London apartment block, every terraced house or semi is different.
The definitive answer remains to research what London tenants want in the area they want it. Our letting agents in London advise our buy-to-let landlords on this.
Demand for city centre apartments, near the nightlife and transport links, can be popular and can offer buy-to-let landlords in London a very good yields with minimal voids.
However, terraced houses and semis – whilst not always offering the best yields – do offer property landlords in London decent capital growth.
My advice to the prospective landlord I met in Chelsea was to do his homework on properties to rent in London and compare the numbers before making a buy-to-let purchase.
Find your London property, here.