London landlords were welcomed to Foxtons Head Office for an exclusive event. Here are some of the highlights from expert speakers on what the market means for London lettings.
Topics addressed:
- An overview of the London property market – the current market and its outlook
- An update on the ongoing market recovery– overview of the current lending market
- A primer on specialist lending - for multi-property landlords
- An introduction to consultancy and review of opportunities– exclusive insight for investment and development
- A guide to upcoming lettings hot spots – quantum factors that drive the London property market
Our Premier Clients team set up a brilliant landlord event, one in an ongoing series, with a wealth of insight into the current and upcoming market. In this article, we’ll touch on some of the fantastic insight from the event with a few key points that any business-minded London landlord should know.
Overview of the London market
Amit Sharma, Area Director at Foxtons, discussed market growth and compared good investments 10 years ago with similar opportunities today. His big topic, however, was renter demand. At the same time that there was an industry-wide reduction in supply and unusually high renewal rates, renter demand soared, “At the end of 2021, we had 20 renters registering per every home listed…That trend is still continuing.”
What does this mean for London landlords? Amit said, “A recent report commissioned by the NRLA (the National Residential Landlords Association) suggested that 85,000 new rental properties will be needed per year to satisfy London demand…Q4 2021 versus Q4 2020, we saw a significant increase in rental prices anywhere between 20 and 36.4%.”
One opportunity Amit mentioned was in London’s thriving corporate market. Foxtons deal with many relocation agents, and they’re unbelievably busy. He said, “Typically, [corporations] have higher budgets and they’re happy to pay more for the service.” Landlords can harness this potential, “We are dealing with entry level to CEO. They're renting one beds to family houses across London and across the Home Counties.” Amit’s tips for landlords getting into corporate lets were:
- Set up a spare room or corner as office space – most of these renters are hybrid workers who need to work from home.
- “A lot of relocation agencies…will only take professionally managed properties.” Which is good news for landlords who choose property management, as Amit also mentioned, “Rent for managed properties is 9.6% higher than non-managed properties.”
Get in touch to find out more about Foxtons Corporate Services and what professional property management can do for you.
Further reading: 5 ways landlords can attract corporate tenants
Update on the ongoing market recovery
Thomas Davies, Sales Director at Alexander Hall, revealed the key takeaways for landlords in the mortgage sector:
Interest rates, after the best part of a decade being on the fall, are now on the up. Over the last six to eight weeks especially, inflation and global events have influenced mortgage products increasing anywhere between 0.5-1%. However, Thomas noted, “If you go back to 2006…the best products that I could get my hands on at the time for my clients were two to three times costlier.” So, he qualified, “whilst we are in a rising rate climate, rates remain very, very competitive. So for anyone who is considering investing in property further, or refinancing an existing portfolio, now indeed is the time.” Looking forward, the industry forecast is, “lending levels are going to stay fairly consistent with last year, which was actually one of the one of the strongest years for mortgage lending on record.”
Thomas pointed to regulatory changes as a potential challenge, as they have been for the past couple years. With Gas Safety Certificate, EICR, PRA ‘Portfolio’ regulations, the stamp duty surcharge and phasing out of interest relief to think about, “Things have gotten more complex…it’s really a trend of the sector professionalising. It is becoming essential to get advice from your best-in-class estate agents, an accountant or a mortgage broker…to optimise your property investment portfolio.” One of the obvious future challenges for landlords relates to the Green agenda. For example, with EPC, the government’s green milestones are:
- April 2020 - Properties must be EPC E or above on all tenancies (includes existing)
- April 2025 - Properties must be EPC C for new tenancies
- April 2028 - Properties must be EPC C for all tenancies (including existing)
This raises a lot of questions for landlords: What are the costs going to be? Who can do the enhancements? Will I incur a void period where a tenant cannot live there due to works? Does it make sense to try and borrow against my portfolio? Will my lender offer advances? Having an expert mortgage adviser / property manager will ensure you’re up to date as things are decided and best practices are discovered.
Keep on top of the changing regulations with advice from Alexander Hall and Foxtons Corporate Services.
Primer on specialist lending
Peter Corbett, Associate Director of Specialist Lending at Alexander Hall, discussed his understanding of incorporation - the process by which you move the ownership of a portfolio from personal name to a limited company.
In his experience, there are three main reasons landlords are looking to incorporate a portfolio:
- Owning property in personal name has typically become less cost efficient due to the income tax changes phased in between April 2016 and April 2020. However it is still possible to offset the full amount of mortgage interest against rental income if the properties are owned in a corporate structure.
- Corporation tax: this is typically lower than a landlord’s personal tax rate. One of the potential benefits to this is that landlords are able to save deposit funds for further investment over a shorter time-frame.
- Long term tax planning: a lot of his clients feel it is far easier and less costly to pass shares of a company on to family members as opposed to passing properties to them, as the latter can often trigger costs such as capital gains tax and stamp duty.
Peter went on to discuss the different ways he had seen landlords incorporate their portfolios, and how Alexander Hall have been able to advise on and arrange suitable mortgage products that correspond to their clients’ goals. If you would like any further information please contact Alexander Hall.
*Please note Alexander Hall are not tax advisers and do not provide tax advice. If you’d like to explore these options, you will need to consult a professional tax advisor.
Our consultancy and review of opportunities
James Wood, Consultant for Investment and Development Consultancy, and Oliver Hopkins, Senior Investment Broker for Investment and Development Consultancy, illustrated what consultancy can do for an enterprising London landlord.
Who: This new, exclusive service for Foxtons Premier Landlords – Land and Development Consultancy – provides sales and rental advice, based on expertise, software and data. After Consultancy has got your site found, bought and rented out, we’ll introduce you to your Premier and Property Management teams, making Foxtons your one-stop shop.
What: Residential development opportunities, land sales and acquisitions, investment sales consultancy and trusted advice.
Where: This team provides an expert voice for property investment and land development all through London. Our Land & Development Consultancy team work across our 50+ offices and beyond.
Our software, data and expertise help to identify sites that could be useful investments. The Foxtons Land & Development Consultancy team showed Premier Landlords in attendance some investment opportunities, get in touch if you’re interested in investing in London property.
Guide to upcoming hot spots
John Ennis, Foxtons Managing Director for New Homes & Central London, discussed how to look for upcoming hot spots in the London market, “If you pour sand into London, it doesn’t flow equally…In this case, if you pour demand into London, it doesn't flow equally. It flows to where the quantum factors affect value.”
What is a quantum factor? A quantum factor influences a property's price over and above the average. So, when an area benefits from quantum factors, their growth potential will outperform the norm.
- Infrastructure/Transport – watch for areas affected by transport improvements, like the upcoming Queen Elizabeth line, Crossrail, 24-hour tube stations and branch extensions to rail or underground lines, etc. which make an area more viable for renters.
- Commercial/Retail – the influx of buildings and commercial infrastructure brings jobs and consumers to the area, making it more convenient and attractive.
- Leisure & Pleasure – People will want to live where there are fun things to do at the weekend. Theatres, museums and permanent or temporary additions that set an area apart, like BOXPARK in Croydon, will draw attention to renters.
- Green Open Spaces and Water – along with leisure and pleasure, look for reinvestments into nature, which increases the borough’s beauty, entertainment and appeal.
- Regeneration – follow where capital investment projects are making big changes in a borough, like with the Royal Docks and in Croydon.
John gave an example, “We saw it in Stockwell. You could have bought in Stockwell at £550 a square foot. At the time, people thought ‘I’m not sure, I don’t think I like it.’ However, that’s the time to buy. Buy before you would say, ‘I want it to look better, have better cars, have better shops…’ As soon as you bring in things that are better, the values go up. Would you rather buy something at £550 per square foot, or in 3-5 years, at £800 per square foot?”
Tread carefully or be bold
John observed different investment strategies, “Sometimes [investment] involves speculation and sometimes that involves being bold. Some [investors] prefer a consolidated, strong, established investment strategy.” You can spend a bit more and invest defensively in areas you know will have big results or that you could retire or give to your children, or you invest aggressively with your ear to the ground for areas in development with upcoming opportunities. “It’s not necessarily everyone’s investment strategy…and that’s what you need to communicate when you’re looking for your next investment.”
Want to discuss your strategy? Contact Foxtons Land & Development Consultancy, or start shopping with Foxtons Auctions through BidX1.
If you’re looking for this kind of insight for your lettings portfolio, contact our Premier Clients team to get on the invite list for the next event.
