Highgate, East Finchley and Fortis Green named lowest yield as buy-to-let landlords hammered by tax changes
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Landlords are selling up as tax changes combined with low yields eat into their profit margins. But if you invest in the right location and are prepared to be patient there are still parts of north London that can turn a profit, say experts
NW11 and N6 have been revealed to be in the top ten worst buy-to-let yielding postcodes in the country, according to TotallyMoney.com. Analysis of more than 500,000 properties revealed that those looking to take out a buy-to-let mortgage would do well to avoid NW11, which boasts the worst yield in London, and the second worst in Great Britain as a whole.
Disheartened landlords have responded by selling off their buy-to-let portfolios In March, agents reported a rise in the number of buy-to-let landlords selling up according to ARLA Propertymark. The letting agents regulatory body saw an average of four selling up per branch last month, compared to three in February. Joe Gardiner, Head of brand and communications at TotallyMoney.com said: “Many people finance properties using a buy-to-let mortgage with the intention of boosting their income a little. The recent tax changes will move several landlords to a higher tax rate, making it harder to make money from investing in property in this way.”
Rental yields are calculated by dividing the average annual rent by the average asking price. It should come as no surprise then that 24 of the 25 top yielding postcodes are found north of Sheffield, with L7 in Liverpool top of the list with 16 per cent yields. London’s most expensive property therefore generally offers low yields since rental prices don’t follow increases in property prices.
“While house prices have risen dramatically in recent years, rental prices have broadly continued to track earnings growth,” explained Mark Lawrinson, regional sales director at Portico Estate Agents.
“Subsequently, rental prices have not increased at the rate property prices have, and yields have steadily declined in the most central and expensive parts of the capital.”
In September 2014, Kentish Town offered the best yields in Camden with 3.87 per cent. In 2017, yields are down in NW5 offering just 2.51 per cent. Yields in Highgate N6 are also down from 2.16 per cent in 2014 to 1.65 per cent. Hampstead now offers the best yields with 2.99 per cent, up on 2.45 per cent whilst NW1 yields grew by 0.42 per cent now offering 2.91 per cent in Chalk Farm and Primrose Hill.
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As a rule of thumb, yields of over 4 per cent for buy-to-let are a good investment. However, yields do not reflect local variation.
“It’s not that black and white,” said Lawrinson. “Investors can expect a 2.9 per cent rental yield around fashionable St John’s Wood High Street, but in the same postcode on Abbey Road, just south of South Hampstead station, investors can benefit from a much higher 4.8 per cent yield.”
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Author of NW3 property blog Christ Christodoulou is not worried by the figures. He argued that rental yields ignore the capital growth that makes Hamsptead properties so attractive for long-term investors.
“Hampstead landlords have to see out a commitment of eight, ten, maybe 15 years before they see those sorts of returns,” he explained. “Firstly, because they’ve got some way to go before they make the inroads with the mortgage to reduce the financial commitment on the borrowing that they made, and secondly, for the investment to actually establish itself.
“It’s a much slower process, but if you compare it with the landlord who buys a house in a street in Warrington for £60,000, in ten years time he’ll be lucky if his property’s worth £80,000, whereas a Hampstead landlord would probably have seen double the equity.”
For investors with more buying power, tax increases are worth the risk, particularly on studio, one and two bedroom flats, which are performing the best in them market despite falling rents.
So where should investors look for a high return?
“If you’re thinking of investing in London property, it’s all about location, location, location,” said Lawrinson. “If an area is experiencing infrastructure investment and consequently regeneration, it’s likely to benefit from a boost in both rental yield and capital appreciation - even in a weak market.” Christodoulou agreed, adding that the night tube on the Jubilee line will likely be pre-empt a spike in prices, particularly invigorating the fledgling corporate buy to let market.
“Investment in this area is a long term game,” Christodoulou said. “It’s a bit like buying a Rembrandt painting, it doesn’t matter what you pay for it…it will only ever go up in value.”
N2: East Finchley
Properties for Rent: 190
Median rental value: £3,861
Properties for sale: 169
Median asking price: £2,957,400
BTL yield: 1.57%
Properties for Rent: 203
Median rental value: £2,678
Properties for sale: 184
Median asking price: £1,942,969
BTL yield: 1.65%
NW11: Golders Green
Properties for Rent: 517
Average rental value: £2,284
Properties for sale: 321
Median asking price: £1,471,280
BTL yield: 1.86%
N10: Muswell Hill
Properties for Rent: 193
Median rental value: £1,605
Properties for sale: 157
Median asking price: £883,880
BTL yield: 2.18%
NW5: Kentish Town
Number of rental properties: 214
Median rental value: £2,023
Properties for sale: 200
Median asking price: £968,600
BTL Yield: 2.51%
N8: Crouch End, Stroud Green
Number of rental properties: 233
Median rental value: £1,629
Properties for sale: 212
Median asking price: £709,658
BTL Yield: 2.75%
NW1: Chalk Farm, Camden Town, Primrose Hill
Number of rental properties: 1672
Median rental value: £3,651
Properties for sale: 600
Median asking price: £1,506,152
BTL Yield: 2.91%
Number of rental properties: 1339
Median rental value: £4,690
Properties for sale: 651
Median asking price: £1,880,395
BTL Yield: 2.99%