London property rental market

London property prices seemingly continue to boom, but it’s mainly the top end of the market where property prices seem unstoppable. Super-prime London has seen annual rises of around 40% in the last twelve months, but that won’t affect most of us! In London 7% of properties are valued at over a million.

The most expensive London property currently on the market is in Belgrave Square, with 11 bedrooms. Savills has the Knightsbridge property up for sale at £35 million. The most desirable area in London appears to be the N1 postocde area. It had nearly 10% of all property searches in May, and has topped the table for three months running. Zooming in even closer, the most popular street in London appears to be leafy Bishops Park Road in Fulham, which has been in the top two for three months in succession.

Woolwich Mortgages has carried out a atsudy which shows that the top five least affordable locations for first-time buyers are all in London, and in three Lodnon areas first-time buyers have to pay over 45% of their income to make their mortgage repayments: Haringey at 45%, Ealing at 46.7%, and worst of all Brent at 48%, making it the least affordable palce to live in London. Away from the capital there are five places where first-time buyers have to stump up over 40% of their income on their mortgage, and Brighton heads the list at 43.6%.

Ever-rising house prices in Britain mean that an average first-time buyer now has to pay 152% more for their monthly mortgage repayments than they had to five years ago. In June 2002 repayments averaged out at £233 a month and in June 2007 the figure has reached £586.

It is a bleak picture for first-time buyers. The longer they keep saving to be able to buy the more they have to save and the further properties get out of their reach. Interest rates have risen five times in the last twelve months and there now seems little doubt that they will rise again – maybe as soon as August – to hit 6%, their highest level since February 2001. It looks as though first-time buyers will soon be in their 30s before they can afford to buy, spending all the time in their 20s saving up to be able to do so. For people who already own a property the rising interest rates continue to stretch them almost to breaking point, if they are on any form of variable rate mortgage.

As for those people renting property in London, the outlook is not much brighter. Estate Agent Knight Frank’s London lettings index shows that average rents in the capital went up by 4.2% from April to June this year – and the is the biggest rise since records started in 1995. The last year has also seen the largest annual rent rise since records began with an average increase of 12.2%.

Central London rents have risen most quickly in Kensington and Notting Hill, where the increases have been by 6.1%, the lack of available properties enabling landlords to push up prices.

The rises in central London, however, are not the steepest. Outside the central area, in places such as Wapping and Canary Wharf, rents have gone up 7.6% in the last three months and a massive 14% in the last twelve months. Supply cannot meet the demand even though some landlords have chosen to sell their properties to take advantage of large increases in capital growth, and avoid getting caught by increasing mortgage repayments which have resulted from the recent interest rate rises.

The main reason for rental demand at this time of the year is families seeking to relocate outside of the normal school year to give themselves the least disruption possible. The average weekly rent for a property in London is now £578, but increasing rents in London have not necessarily meant increasing profits for landlords. In prime central London rental yields have actually dropped to a record low, with gross yields at just over 4% following on from the high growth in the price of houses in the last three months. So, although rents have gone up the value of the property as gone up more, relatively, meaning that yields, as calculated, have gone down. The forecast is for rental growth to catch up with capital growth to improve yields again, as the market for sales cools down a little over the holiday period.

As stated above, the reduced yield and increasing mortgage repayments have caused some landlords to think that this is the right time to sell. They might also believe that the housing bubble, even in London, might be about to burst. At the moment, however, the proeprty market in London is still strong, and even though the price graph may flatten there is still plenty of growth left in it yet.