Buy-to-let investors! Why London is a rental market that could still make you rich

The three words ‘London housing market’ have been enough to send a chill down the spines of many a property owner over the past 12 months or so.

We all know the stresses that Brexit, and its current (and future) consequences, have had on home values since the EU referendum. The stratospheric home price growth of yesteryear has seemingly been consigned to history, and in the case of the capital, has been replaced by stagnating, if not receding, prices.

Latest figures from Hometrack UK indicated that home prices in the capital had risen just 0.2% in January on an annual basis. And Foxtons warned just this week that a range of factors, including political ones, mean that low transaction levels were likely to persist “in the short-to-medium term.”

Capital gains for landlords

You can come out from behind the sofa, though, because things aren’t all bad. Well certainly not if you’re a prospective or existing landlord. According to Foxtons, “there is momentum in the lettings business” and the estate agency consequently saw revenues rise here in 2018.

Indeed, a recent report from ideal flatmate showed one sub-sector of the rental market that is performing particularly well: the market for tenants seeking single rooms.

According to the online property website, the average price of a room advertised on its boards sailed 13% higher in 2018, to £855 from £781 in the prior year, thanks to “a continued lack of suitable stock and a reduction in buy-to-let investors.” And prices have continued to rise in 2019, ideal flatmate said. The average price currently sits at a whopping £902, with the most expensive average in London sitting at £1,045 for a room in Westminster.

“We’re currently seeing the price of room rentals in London increase at a rate of at least one per cent a month on average,” co-founder of ideal flatmate Tom Gatzen said, who also attributed the jump to “a reduction in the number of landlords and letting agents with rooms to rent as a result of the stamp duty shake-up, changes to tax thresholds and the impending ban on letting fees.”

The Top 10 Most Expensive London Boroughs

Source: ideal flatmate

Alive and kicking

Talk of the demise of the buy-to-let market is clearly overdone. The London market still provides plenty of scope for landlords to make huge returns.

And while home prices are currently under some pressure, this isn’t something that long-term proprietors need to worry over, in my opinion. The capital remains one of the world’s most popular cities for both native and foreign homebuyers and it always will, meaning that property values are bound to make a comeback.

Would I invest in the rentals market myself, though? No. The sea of tax changes in recent years means that buy-to-let isn’t the lucrative investment opportunity that it was just five years ago, whilst increasing regulation makes it a much more complicated endeavour. There are much better ways to make your money work for you, in my opinion, and for this reason I’m using my cash elsewhere (like investment in the stock market) to help me make my fortune.