How Much Do Landlords In London Owe Through Borrowing?
Despite a raft of changes to landlord tax relief in recent years, buy to let investing is still alive and kicking. That’s especially the case in some of the UK’s largest cities, such as Manchester, Leeds, Glasgow and Liverpool.
However, nowhere is buy to let more prolific than in the UK’s capital itself. London makes up 1.5 trillion of the UK property market. So how is that property funded? Well, most landlords in the capital will have signed up to a buy to let mortgage. After all, considering the average property price in London is around £600,000 what else can they do? Very few landlords have that kind of cash at their disposal.
It is estimated that the average inner London landlord (where property is excessively high in value) has borrowed around £1.1 million. That equals 24% of the average buy to let portfolio there. In Greater London the average cost of borrowing per landlord is £811,000. The yield here is slightly lower than that in Inner London.
Those high borrowing figures don’t seem quite so alarming when you consider the cost to rent in the capital. In Inner London, for instance, landlords can easily pick up £2,450 pcm in rent. In Greater London that figure is £1,690.
Mortgage Interest Rates Are Low
Landlords are paying extremely low interest rates for buy to let mortgages these days. Currently the Bank of England base rate is 0.1%. It was dropped in March 2020 as a result of the financial instability caused by coronavirus.
Most landlord mortgages are interest-only which means landlords can expect bigger monthly profits in their hand from their investment. At the same time, they can sit back and watch the capital appreciation add up.
Deposits Are High
Really, it is just as well mortgage interest rates are low – considering the size of deposit for a buy to let mortgage. Deposits for these are higher than for a standard residential mortgage. They can range from 25% up to 40% of the loan to value cost. That’s a lot of money to find upfront.
And it is why many landlords are these days opting to invest in bricks and mortar outside the capital. The northern cities we mentioned in our intro, for instance, are becoming more popular with landlords who would previously only invest in London.
Yields in Manchester are 6% on average, compared to 5% in the capital. The average price of a property is around the £180,000 mark – so you wouldn’t need as big a deposit as you would in London either.
Boosting Your Rental Income
Regardless of where your buy to let property is, the longer tenants stay there, the less hassle you will have. It also means you won’t have to spend on marketing your property and referencing checking other would-be tenants.
And the way to make good tenants stay is to attend to their repair requests quickly and be friendly but professional with them at all times. It’s nice to be nice as the saying goes – and in this case it’s also profitable.
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As a landlord you will gain passive monthly rental income from your buy to let and capital appreciation as the years flit past. And it’s exactly this capital appreciation ...
February 12, 2021
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