House next to interest rate

How Much do Landlords in London Owe Through Borrowing

25 August 2020 Simon Banks Read time: 3 min
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Simon Banks

Investing in bricks and mortar is about as British as tea and biscuits. So it won’t come as a surprise to learn that the buy-to-let industry is worth a whopping 1.5 trillion of the UK property market. Savvy landlords can do well out the rental market while providing good-quality homes.

Despite a raft of changes to tax and wear and tear, many investors are still eager to tap into a market that will make up a quarter of all UK households by 2021. But unless you have a Scrooge McDuck money pit hiding in your basement, you’ll likely need a buy-to-let mortgage.

This is especially true of London, which has some of the most expensive property prices in the world. Currently, the average price of a home in the capital is just shy of £600,000. Property purchases don’t come cheap, which is why many of the two-million-plus landlords borrow to fund their investment.

But how much do landlords in London owe through borrowing? We’ve had a look at the numbers to find out.

How much do landlords owe in London?

In inner London, the total figure owed per landlord amounts to £1.1m, which is, to put plainly, a lot of money. However, it only equates to 24% of the average buy-to-let portfolio in the area. And when you look at the whole picture, the outlook doesn’t look so high.

Piggybank and miniture house

Outer London yields similar results, albeit with slightly lower figures. On average, each landlord owes £811,000 in buy-to-let borrowing, which also equates to around 24% of the average buy-to-let property. Outer London also has the lowest yields of all regions in the UK, at 4.8%. Inner London’s yield is 5%.

However, the average rent earned in inner and outer London far exceeds any other region in the UK. Landlords can expect an average of £2,450 per month in inner London and £1,690 in outer. The South, South East and South West of England are the only other regions to see rental averages climb above £1,000.

Competitive buy-to-let mortgages

For many landlords, these borrowings aren’t as daunting as they might initially seem. Low rates (currently 0.1%) and competitive product fees – coupled with interest-only mortgages – mean there are a raft of buy-to-let borrowing options at the moment.

It means a healthy return on rental income while the capital appreciation grows if you play your cards right. Even in the aftermath of coronavirus, the majority of landlords who are in the rental market for the long term probably won’t concern themselves too much with any current uncertainty, especially if the plan is to keep the property for 10-15 years. 

Beyond the capital

Even with low-interest rates, buying a property in London doesn’t come cheap. The majority of mortgage borrowers offer a loan to value maximum of 75%, which means cobbling together a deposit of £148,000 if we’re going by average London house prices.

With yields of around 5%, you may decide that the grass is greener outside the capital – and you wouldn’t be entirely wrong. In the last few years, areas in the north of England have become rental hotspots, namely Manchester.

Manchester

The northern powerhouse enjoys yields of more than 6%, which is more favourable than London’s overall average. Property prices are lower too: in Manchester, the average price of a home is £183,000. So you would only need a deposit of around £45,000.

Rents in Manchester are lower than London’s average, yet apartments in the city centre can see returns of £900 per month. Nearby Liverpool and Sheffield and Leeds in Yorkshire also enjoy more affordable property prices and higher yields.

Maximising rental income

Whether you own a rental property in London, Manchester or elsewhere, it’s vital that you maximise your rental income. Working with a good agent who knows the market, utilises tech options and values high-quality, verified renters is a good place to start.

As is being responsive with your renters and providing a good-quality service that will see them stay in your buy-to-let for the long term, reducing void periods in the process. With so many renters on the market, demand should be the least of your worries – but you still want to ensure you have the best renters for your property.

The modern-day landlord

There’s plenty for landlords to be joyful about in the rental market, whether you’re borrowing to fund your buy-to-let or own it outright. Tapping into the latest trends and understanding tech-savvy renters will only help your cause, leaving you to enjoy passive income and minimum stress.

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