Potential buy-to-let investors in London should avoid buying ground-floor flats, according to a lettings agency report.
Three-bedroom properties have also seen the largest increase in average weekly rent, the 2022 lettings report from Foxtons has claimed.
Which? takes an in-depth look at the report and explains what potential buy-to-let landlords should think about before investing in a London apartment.
‘Raised ground’-level flats command highest rental premiums
According to Foxtons, buy-to-let landlords renting out standard ground-floor flats are suffering losses, with the ‘rental premium’ – the buying price per sq . ft . compared with the rent per square foot – commanded by such properties down at -9.4%.
In contrast, the premium for ‘raised ground floor’ flats (properties above street level, often accessed by a flight of steps) is 6.2%, and it’s 4.7% for ‘lower ground’ (i.e. basement) flats.
What difference does size make?
Three-bedroom flats experienced the biggest year-on-year rise in average weekly rent, growing by 3.9% to reach lb658 per week in 2022, based on the report.
| Type of flat | Average weekly rent in 2022 | % change 2022 to 2022 |
| Studio | lb289 | 1.5% |
| 1-bed flat | lb366 | 2.2% |
| 2-bed flat | lb461 | 1.6% |
| 3-bed flat | lb658 | 3.9% |
Zone 2 most popular with renters
According to Foxtons, the strongest development in weekly rent has been in Zone 1, in which the average is continuing to grow by 3.9% year-on-year hitting lb554 in 2022.
In Zone 2 rents average lb459 each week – an increase of 1.7% – as well as in Zones 3-6 it’s lb394 (2.2%).
Zone 2 properties attracted the most interest from renters, with 41% of the prospective tenants registering with Foxtons in 2022 requesting a Zone 2 location.
By comparison, 29% of tenant registrations were for Zone 1 properties and 30% were for Zones Three to six.
The overall number of tenant registrations rose by 8% in 2022, however the number of properties visiting the market came by 11%.
London’s buy-to-let hotspots
In a current blogpost, Foxtons singled out Hornsey, Hayes and Leyton as upcoming buy-to-let hotspots.
According to the UK House Price Index, the average house prices from our authorities these boroughs are located in are lb536,718 in Haringey (Hornsey), lb407,751 in Hillingdon (Hayes), and lb440,455 in Waltham Forest (Leyton).
Last month inside a separate blog Foxtons designated Barking and Dagenham, Newham, Tower Hamlets and Greenwich because the top four London boroughs to rent yields this year.
Affordability rules for landlords
The biggest stumbling block for many landlords trying to get a buy-to-let mortgage is the strict affordability testing imposed by lenders, resulting from tough restrictions imposed by the Bank of England (BoE).
Technically, your projected rent must cover at least 125% of the home loan repayments to fulfill the eye cover ratios (ICRs) needed by the BoE.
However, most lenders will test your affordability based on higher ICRs of 140-145%.
Our video explains the basics of how buy-to-let mortgages work.
What else should prospective landlords consider prior to making an investment?
You’ll have to put down a bigger deposit on a buy-to-let property than a residential one – typically around 25% but as much as 40% if you want to qualify for the best prices.
Ultimately, you should think about whether you can generate enough rent to help make the investment worthwhile, with enough cash for unexpected bills and the void periods in between an occupant moving out along with a new tenant relocating.
Investors often discuss the rental yield, which is simply the annual rent around the property divided by its value like a percentage. According to Foxtons, gross yields for London flats increased from 4.5% in 2022 to 4.9% in 2022.
However, if you’re factoring capital growth in for your investment, it's also wise to take house price activity into account. Combining yield with house price activity, Foxtons claims the ‘total annual return’ of the London buy-to-let has fallen from 7.8% in 2022 to three.6% in 2022.
