I had an interesting chat with a buy-to-let property landlord the other day about my thoughts on the London Property Market.
The subject of the affordability of renting property came up in conversation and how that would affect tenant demand.
As a leading letting agency in London, we’re interested in the profitability of rented properties for our investment landlords, but also in the financial wellbeing of our rented property tenants, too. Both are equally important.
Everyone wants a roof over their head, and since the Second World War, owning one’s home has been an aspiration of many Brits.
However, with rents at record highs in many BS postcodes, rented property tenants in London are now struggling to save enough for a house deposit whilst meeting rental payments each month.
Let’s be honest, it’s easy to get stuck in a cycle of paying the rent and bills and not saving, but even saving just a small amount each month will sooner or later add up.
George Osborne announced such schemes as the upcoming Help to Buy ISA, where the Government will top up a first-time-buyer’s deposit.
Therefore, I thought I would do some research into the London Property Market and share my findings with you.
Tenants in BS postcodes spend on average more than a third of their salary to have a roof over their heads. According to my latest monthly research, the average cost of renting a home in London is £944 per month. Our property agents in London have also confirmed this.
When the average annual salary of a London worker, in the lower quartile, stands at £33,596 per year, that means the average tenant is paying 33.7% of their salary in rent.
I doubt there is much left to save for a deposit towards a house after that, and that is such a shame for the youngsters of London. Our letting agents have seen increased demand for high-quality rented properties throughout 2023 as a result of this.
One the reasons for rents being so high in BS postcodes is that property prices are high. As I have mentioned before, there is a severe lack of new properties being built.
It’s the classic demand versus supply scenario, where demand has increased, but the number of houses being built across London hasn’t increased at the same level.
Also, London residents aren’t moving home as often as they did in the 80’s and 90’s, meaning there are fewer properties on the market to buy.
If you recall, a few weeks ago I said back in Spring 2018, there were over 8,100 properties for sale in London and since then this has steadily declined year-on-year, so now there are only 1,721 for sale in the City.
Back in Spring 2018, there were over 8,100 properties for sale in London and since then this has steadily declined year-on-year, so now there are only 1,721 for sale in the City.
So, the planners haven’t allowed enough properties to be built in the City and existing London homeowners are not moving home as much as they used to – thus creating a double hit on the number of properties to buy.
This is a long-term issue and the continuing diminishing supply of housing has been happening for a number of decades.
There simply aren’t enough properties in London to match demand, and these are the reasons houses prices have remained buoyant, even though economically, over the last five years, it was one of the worst on record for the country and the South West region as a whole. Our property agents in London have carefully monitored this trend.
However, things might not be all doom and gloom as originally thought, as a recent Halifax Survey (their Generation Rent 2023 Survey) suggested more and more people may be long term, if not lifelong, rented property tenants in London.
In fact, there is evidence in the report to suggest that the perception of how difficult it is to get on the housing ladder is vastly different between parents and people aged 20 to 45.
It seems from this survey that the state of the UK economy has shifted priorities among rented property tenants significantly in a short space of time.
With fewer people able to save up the deposit required by mortgage lenders, more and more people are continuing to rent. This is good news for buy-to-let landlords in London.
This delay in moving up the property ladder has driven rents across the UK up as more people were seeking rental properties.
It is often said that more people in central Europe rent for longer or never own their own property. Our property agents in London have been busier than ever before as a result.
The last two censuses in 2001 and 2011 show that proportionally the percentage of people who own their own home in Britain is slowly reducing and, as a country, we are becoming more and more like Germany.
That isn’t a bad thing, as Germany is considered to have a more successful economy, one of the main stays, often quoted, is because they have a much more flexible and mobile workforce, (which renting certainly gives) and from that, they have a higher personal income than in the UK.
Therefore, if we are turning into a more European model and the youngsters of London and the UK overall have changed their attitudes, demand for rental properties will only go from strength to strength. Property investment in London will remain buoyant and profitable.
This is good news for London tenants, as wages will start to rise and good news for London landlords, especially as property values in London are now 7.71% higher than a year ago.
For guidance on the London property market, click here.