If you’re looking for an investment opportunity, property in London is always a good long-term option. The big question is which are the best buy-to-let areas in London?
Investing in buy-to-let makes sense right now. Rents are at a premium and demand is incredibly high – with at least 15 people chasing every London rental property according to figures from Rightmove. At the same time, house prices are falling, say many commentators, meaning you may be able to get more for your money.
When it comes to investing in buy-to-let in London, there is one key figure you need to keep in mind – rental yield. Rental yield is a percentage calculated by dividing the expected rental income for a year by the amount of money you spend on the property. It is used to give an indication of how good a return you will get on your investment.
So, say you were looking at buying a flat for £360,000 and asking a monthly rent of £1,800. This would give you a total annual income of £21,600 which equals a rental yield of 6% (£21,600 divided by £360,000 x 100).
This would be regarded as a good rental yield but you need to consider whether it represents a better return than other types of investment, remembering that London property will usually rise in value in the long term – known as capital appreciation.
Before you start calculating rental yields, it is worth having a think about where in London you’d like to invest. Remember the capital has some of the most expensive areas to live in the world, so you need to be realistic. Also remember to factor in the costs of buying as a landlord, including the 3% stamp duty surcharge on second homes.
Set your budget then start researching what you can get for your money, always keeping in mind your target tenants. Make sure you research demand for your type of rental property, checking that the area you chose has the right facilities in place – so, if you’re looking to buy a flat aimed at young professionals, are there good transport links, amenities, cafes, bars and shops etc to tempt them.
To help you, here is a quick overview of the best buy-to-let areas in London for investors – from north to south and east to west.
East London
East London is possibly your best choice for bagging a bargain. Prices tend to be lower than other London areas and parts of east London are extremely popular with younger renters.
Stratford, East and West Ham offer good yields as do areas of Docklands and Hackney. However, you need to look for the less central areas and into Essex for higher rental yields – between 4.5 and 6% according to some analysts.
Romford for example, has some of the 20 best yielding postcodes in London. Also consider Hornchurch, Dagenham, Rainham, Upminster and Harold Wood. These areas are popular because they all have good transport links into central London and plenty of shops and amenities.
North London
North of the capital has some of London’s most desirable – and pricey – postcodes with the likes of Islington, Camden, Hampstead and Highgate – great long-term investments, if you can afford the outlay. If you’re looking for good rental yields north of the river, consider the less fashionable and further-out suburbs including Wembley, Tottenham, Willesden and Edmonton.
West London
West London takes in some pretty exclusive areas such as Kensington, Holland Park and Chelsea – home to London’s most expensive streets. Look west towards Heathrow Airport and beyond for better yields, considering places such as Brentford, Hounslow, Uxbridge and Hayes. Ealing and Hammersmith are pricier but popular with renters.
South London
In south west London you’ll find sought-after suburbs such as Richmond and Wimbledon – with a price tag to match. You’ll need to look further out for more value, where you could consider Mitcham or parts of Sutton and Croydon or even around Streatham.
When you’re looking south to invest, east will bring more value. Areas to consider with good yields include Thamesmead, Plaistow, Charlton and Woolwich. The SE4 postcode covering Brockley, Crofton Park and Honor Oak has a good return and Peckham and Nunhead are central, popular and also bring decent yields.
If you are thinking of investing in buy-to-let property in the Romford, Hornchurch, Dagenham, Rainham, Upminster and Harold Wood areas, talk to us. We’d be happy to advise you about the best areas to find good yields and show you our current properties – as well as help you get to grips with the role of landlord.
