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Property investors are returning to the London new-build market in droves, tempted by a sharp rise in rents and an expanding buy-to-let loan market.
Sales of new developments to investors have been in decline since 2007, when the buy-to-let boom turned to bust. But Barratt Developments said this week that in London, in particular, the downward trend has reversed.
It revealed that unit sales of new-build properties between January and September have been 179 per cent higher than in the same period last year, as investors seek opportunities for higher returns in a period of prolonged low interest rates.
“Rental returns and the potential for capital gain in the London property market have been convincing motivators for both domestic and international investors to add new-build homes to their portfolios,” says Gary Patrick, regional sales director, Barratt London.
He reports that the most popular London new-build sites with investors are in Dalston, Pontoon Docks in Docklands, Deptford, Lewisham and Putney Square.
“Docklands is one of the hottest areas for buy-to-lets,” confirms Tony Gambrill, area director at estate agent Chesterton Humberts. “The yields have increased due to the strong increase in rents and the lenders have become a little less stringent in lending criteria – which has made for a healthier environment for the buy-to-let investor. While international investors remain the bedrock for central London sales, UK investors are the mainstay in the Docklands.”
Property analysts say the buy-to-let sector as a whole is experiencing a revival, as investors are attracted by rising rental demand, which has seen average UK rental income rise for seven consecutive months – reaching a new high of £713 per month in August.
Investment activity is also being fuelled by a wider choice of loans for buy-to-let investors.
Research from the National Landlords Association (NLA) found that the number of buy-to-let mortgages provided during the second quarter of 2011 grew by 25 per cent, compared with the first three months of the year. Average loan sizes also increased by £2,166, to £138,525, representing a growth of 6.4 per cent since January.
“Wider choice and better products for landlords mean that the overall buy-to-let market is improving,” says Paul Rockett, managing director of NLA Mortgages. “Although demand for finance still outstrips supply, the level of buy-to-let lending is gradually increasing – giving property investors a reason to be optimistic.”
This week, State Bank of India became the latest provider to enter the UK buy-to-let mortgage market. The lender, which is owned by the Indian government and authorised by the Financial Services Authority in the UK, is set to offer a lifetime tracker deal at 3.99 percentage points above the Bank of England base. It will be available to borrowers with a deposit of 40 per cent or more, and carry a £1,990 arrangement fee. It will compete with the current market leading rate of 3.48 per cent from Woolwich with a £1,999.
Chesterton Humberts says that demand from international students is helping to drive competition for new-build buy-to-let properties in the areas immediately surrounding some of the London’s top universities. Its report, published this weekend, Home away from Home, the impact of foreign students on London’s residential property market, reveals that these areas have significantly outperformed other areas over the past decade.
“Property prices in the areas immediately surrounding these institutions have, on average increased 1.6 times more than properties in the wider borough over the past ten years,” says Nick Barnes, head of research at Chesterton Humberts. “Rental accommodation in the same areas command an average premium of 27 per cent over the borough average.”
For example, property around the UCL campus in Euston showed the most dramatic differential, with average price growth of 246 per cent, compared to 104 per cent in the wider Camden borough area, closely followed by the accommodation around University of Westminster, which increased 247 per cent compared to the 116 per cent thoughout the City of Westminster.