Buy-to-let investors are shying away from London as rental returns fall below other areas in the UK.
Findings from UCB Home Loans have indicated investors can receive 50% higher returns on buy-to-let properties in the North compared to London.
Charles Reed, managing director at UCB Home Loans, said: ‘Landlords can find it difficult to make profit in parts of London and the South East. Careful purchasing of property can offer landlords rental returns of between 8% and 10% in some areas of the country, but in parts of London and the South East, a 5% return is sometimes difficult to achieve. Combine this with the fact that London property may cost more than twice as much to purchase and the attraction of less expensive areas becomes obvious.’
London has not only been affected by decreasing yields but also a drop in rental values, according to David Humphreys, director of consultancy firm Buy to Let Limited.
‘Not only have yields fallen but rents have fallen in pound terms. Many London properties cannot justify high levels of gearing.
‘Rent has to exceed mortgage payments by a certain amount, so London is looking doubtful from the point of view of cash flow. However, prices in London are rising, so if you invest in London you need to do it for growth and have alternative properties elsewhere,’ he said.
Although London appears to have reached saturation point, UCB’s lending in the sector for the last quarter of 2001 almost doubled that in 2000.