The following article was written by Anne Currell and published in the Angel Magazine April 2012 edition.
In February Warren Buffet, known for his long history of successful investment, advised buying farmland rather than gold. Whilst there is not much in the way of farmland in central London (though there is some!), perhaps what Mr Buffet is saying is that, once again, we should be viewing property as the primary long–term investment choice. A fair comment to make… from a wealthy man… but how realistic a goal is it for the many, and not the few?
In Central London the number of residential rentals is increasing rapidly as more and more buyers are finding it difficult to purchase and have to resort to renting. This pushes up rental values, increases yields and reduces stock levels. Not only are buyers being pushed towards renting, renting itself is becoming increasingly more expensive.
Recent statistics from the Council of Mortgage Lenders show that average mortgage borrowings now represent only 29% of property value. A figure that jointly bears up that the cash-rich are the dominant force in purchases currently, and that it’s very difficult for those with little or no equity or deposit to move. Cash is very much king.
There is a predicted increase in the population of Islington from 208,800 in 2011, to 217,700 in 2016 – a jump of 4% (London.gov.uk). Then factor in the predicted increase in the number of actual households, due to the dominant increase of one person households, from 99,000 in 2011, to 104,900 in 2016 – an increase of 5.7%. Where are all the properties going to come from? The building target for Islington is 1,170 households per year leaving a shortfall of over 3,000 properties in a 5 year period. With the increase of residential yields from rented property, balanced against good medium-term capital growth, there is a growing argument for a closer look at a residential “build to let” business model. Institutional investment may well become key; in addition to equity-rich buy to let investors.
Whilst we would not wholly ascribe to the notion that Britain will become a ‘nation of renters’, in the same way that some of our European neighbours are, we do believe that we are experiencing a strong shift in that direction.
Mortgage lending is still tight and LTV rates reasonably high, but buy to let mortgages are once again in the ascendency. We believe that if you are in a position to make a first step, or further steps, into property investment then now is as good a time as any. Whilst stock is not exactly plentiful presently, bearing in mind the forecasted increases in population and households, the stock situation could get worse.
We are seeing more and more confidence in property as a sound long term investment from individual cash-rich purchasers, overseas buyers and institutional investors; something which sets Central London apart from the rest of the UK.