When it comes to the housing market, London has long been seen as a market within a market. After the credit crunch hit, and house prices across the country headed south, desire to buy within the capital remained robust. In seemingly no time at all, house prices within London had not only recovered but surpassed its previous peaks.
According to Land Registry figures, house prices in the capital have rocketed 51% since November 2007. In comparison house prices across England and Wales have grown just 4.84% during that same period.
The desire to live in London makes it an attractive place for property investors too. It is the nation's economic hub, with millions of workers heading into the capital every day for work, while its status as one of the world's most exciting and interesting cities serves only to boost its appeal. There will rarely be any shortage of prospective tenants.
But the strength of the London housing market may actually dent its appeal to property investors in future. Back in April the Government introduced an additional 3% Stamp Duty charge on second and additional properties, which makes investing in a buy-to-let property far more expensive.
Buying a one-bed property in West London will set investors back £475,000 on average. Thanks to that increased Stamp Duty rate, it will cost a massive £28,000 in Stamp Duty, compared to £13,750 before 1 April.
We believe that investors will increasingly look beyond the confines of the M25, where they can find prosperous housing markets offering a small portfolio for the same price, where they will pay the same or less tax than buying in London, and enjoy a better return to boot. The latest LendInvest Buy-to-Let Index shines a light on just what opportunities are open to investors who look outside the capital.
For example, the average three-bedroom property in Bath costs just shy of £230,000. Rather than buying that one-bedroom property in West London, you could buy two of these properties in Bath, and save more than £10,000 on Stamp Duty, with a bill of £17,996.
Of course, landlords also need to worry about the rental yield when picking up a buy-to-let property, and again they end up better off outside the capital. The typical rental yield of a one-bedroom property in West London is 2.8%, while for those three-bedroom properties in Bath they will enjoy a far healthier yield of 4.3%.
As the budgets get bigger, the comparisons become even more extraordinary. For £750,000 an investor could pick up a three-bedroom property in North West London, with a rental yield of nearly 5%. That same budget is enough for 10 two-bedroom properties in Sunderland, with a higher rental yield of 6.36%, and a total Stamp Duty bill less than half that of the London purchase (£22,490 compared to £50,000 in the capital).
There are hurdles for 'cross-country landlords' to consider though. Buying ten properties in Sunderland means finding ten lots of tenants, and dealing with ten times the number of burst boilers. Finding quality letting agents to manage the properties and remove some of that burden will become essential. Dealing with a midnight call about a burst boiler at the other end of the country simply won't be possible otherwise.
What's more, if you aren't buying with cash, that means ten lots of mortgages. Again, finding a great broker to manage the mortgage minefield for you will be an integral part of the process.
But if you can stomach the additional admin, it's clear that the cross-country approach could prove incredibly lucrative, particularly if you turn to areas which will appeal to commuters or which are set to benefit from transport developments like HS2.
The London housing market will always prove alluring to investors. But the savvy ones will be taking a broader approach.
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