London Property Investment 2024 – Comprehensive Guide
In the fast-moving world of property investment, London’s market has always been a step ahead, and as we gear up for 2024, it’s shaping up to be a banner year.
This city isn’t just an economic giant; it’s a strategic playground for real estate investors who know that location is king—and there’s no region quite like London.
Its resilience against economic tides and its perpetual draw for international investors underscores a clear message: opportunity is on the horizon.
Join us as we delve into why London’s property market remains a heavyweight contender in the global arena and how you, as an investor, can leverage its potential for unparalleled growth in 2024.
In this in-depth guide, we will go over:
- Quick overview of London’s property market
- Why invest in London property in 2024
- Current housing demand in London and recent trends in housing market
- London’s zones and boroughs
- Property types in London and their potential returns
- How much you need to spend on property in London
- Buy-to-let investments in London
- Finding the right property: Where is the Best Place to Buy an Investment Property in London?
- London property investment for international investors
- Legal and regulatory considerations
- Financing London property investment
- Exit strategies
- Answers to some of your frequently asked questions
The London Property Market: An Overview
Historically, London’s property market has shown enviable growth, with property values escalating significantly over the last few decades. The resilience of this market is clear: even when global economic downturns have caused short-term dips, values have generally rebounded and continued to grow over time.
Currently, the market is experiencing a post-pandemic recovery phase. There’s been a shift in buyer preferences, with increased demand for space and green areas.
Prices are on an upward trend, with particular growth in suburban areas as remote work remains a fixture. The rental sector is also picking up, with yields improving as the city’s economy rebounds.
Looking forward, indicators for 2024 are pointing to steady growth. London’s status as a global financial center, its evergreen appeal for foreign investment, and a chronic housing shortage suggest upward pressure on both property prices and rental rates.
Why Invest in London Property in 2024?
London’s Attractive Rental Sector
In 2022, demand for rental property exceeded supply in the capital which resulted in record levels of rental inflation. For some property investors, this may mean that yields are likely to expand in the coming months and years despite an increase in mortgage rates.
With no help to buy schemes and higher mortgage borrowing costs, many first-time buyers remain in the rental sector. This is sustaining the already high rental demand in London. As a result, rental growth of 4% is predicted in 2023, set to rise to 2025 in 2024.
Across the UK, there is little sign of the property supply/ demand imbalance ending in the near future. At the end of 2022, Rightmove reported a 38% reduction in the number of homes listed for rent compared to before the pandemic in 2019.
A shrinking economy and affordability challenges will likely sustain the demand for rental properties, which can be good news for buy-to-let investors in London.
The city is also a tourist magnet, a hub for international business, and home to world-renowned educational institutions. These factors drive a perennial demand for housing, whether it’s for short-term rentals or long-term accommodations. In 2024, as the world further recovers and reopens, this demand is only expected to intensify.
Strong Demand for Student Rental Demand in London
London is home to some of the world’s most prestigious universities and attracts many students from all over the world.
The most popular universities in London for students include:
- University College London (UCL)
- Imperial College Lonon
- King’s College London
- London School of Economics and Political Science (LSE)
- University of the Arts London (UAL)
- The University of London
- City, University of London
- The University of Westminster
- The University of Greenwich.
Student numbers are at an all-time high in the UK.
With a weakening pound, studying in the UK for international students is becoming more attractive, and the UK’s population of 18-year-olds continues to rise, increasing participation rates.
According to a report by Savills, the number of students in London is expected to increase by 20% by 2030, further driving up the demand for student accommodation.
Increasing Demand for London Student Accommodation
In recent years, there has been a growing trend towards purpose-built student accommodation (PBSA) in London. The supply of HMOs is dropping due to increased taxation and regulation, boosting demand for PBSA. Many new developments are being built to cater specifically to student needs.
However, the development of PBSA is slowing due to rising build costs and economic uncertainty.
Student occupancy for the 23/23 academic year is at record levels, and the same is expected for 2023/ 2024. This is creating a highly competitive environment and leads to growth across the sector.
Overall, the demand for student accommodation in London is expected to remain strong, and developers and investors are likely to continue investing in this sector to meet the growing demand. Investors should take a closer look at the student rental market, which is set to deliver high returns through 2023.
London Economy Presents Opportunities for Investors
With the easing of pandemic restrictions in 2022, London’s economy saw strong economic growth as spending boomed. Looking at 2023, the impact of inflation and hike in interest rates is having a negative impact on spending and resulted in an economic down.
This economic backdrop presents both opportunities and challenges for investors. Inflation is predicted to peak in the first quarter of 2023. As interest rates and debt reduce, opportunities for an attractive return on investment are expected to follow. CBRE predicts the possibility of 13% returns over five years for investments made at the end of 2024.
London is an International Business Centre
London is a financial and business hub offering the best transport links to every corner of the globe, making it one of the world’s most competitive cities. International businesses in diverse sectors have their headquarters in London to benefit from its talent ecosystem.
The UK capital offers low corporation tax, a stable and secure legal structure and is highly competitive compared to European cities. At the same time, London benefits from great transport links.
With 5 international airports, the famous underground network and new developments such as Crossrail linking the capital, London’s connectivity is unrivalled.
What is the Current Demand for London Housing?
Population Growth is Driving Demand
Population growth is one the factors driving demand in London’s housing market. London benefits from high demand for homes due to a growing population and shortfall in housing development. In the last decade, the city’s population increased by 800,000 but just 200,000 new homes were built.
In the next decade the population is set to increase by more than 1 million to reach 10 million in 2031. The housing supply/ demand imbalance means high potential for property price growth and plenty of opportunities for buy-to-let investors.
Net Migration is Increasing Demand
From June 2021 to June 2022, the UK recorded one of its highest net migration figures at 504,000. London had the highest population growth of all UK cities, and in 2021 the population reached 8.8 million.
While net migration in London declined during the Covid pandemic, there is now evidence to suggest that many people are beginning to return to London, which is driving demand for rental properties.
What are Recent Trends in the London Housing Market?
The Covid-19 pandemic brought about major life changes and shifted some trends in buyer behaviour which was seen in the London property market. Demand for space post-lockdown meant that London’s suburban boroughs like Ealing, Redbrige, Richmond and Haringey became increasingly popular and performed better than some central options.
A Shift to the Suburbs
In 2022, buyers looked to the surrounding London villages and places like Wimbledon and Dulwich were thriving. Property prices accelerated between 2.5 – 6% in the first half of 2021 in many of these surrounding villages as buyers moved out of the city centre to further afield to get more for their money.
The Impact of Increasing Interest Rates
In 2023, many homeowners who moved to bigger properties during the pandemic are facing a higher financial burden. Many buyers stretched their property budgets while interest rates remained low to afford their dream house, believing that mortgage rates would remain low.
For some pandemic buyers, downsizing would now come with significant cost, such as stamp duty, and a drop in property value (some predict by 8% in 2023) could mean a loss upon sale.
London’s Zones and Boroughs
Central London (Zones 1-2):
Central London is the heart of the capital, with Zone 1 home to the city’s financial district and landmarks like the West End. Zone 2 encircles this core, offering a mix of residential and commercial areas. Prime boroughs for investment here include:
- Westminster: A perennial favourite for luxury investments with high rental demand.
- Camden: Known for its vibrant street life and markets, appealing to both tourists and locals.
- Kensington and Chelsea: Offers some of the city’s most prestigious properties.
North London (Zones 2-6):
North London is known for its leafy suburbs and village-like atmosphere. Investment opportunities abound in:
- Islington: Offers a mix of trendy and family-friendly areas with good growth potential.
- Barnet: One of the largest boroughs with a range of property types and prices.
South London (Zones 2-6):
South London has seen significant regeneration, making it a hotspot for investment. Noteworthy boroughs include:
- Wandsworth: Attractive due to its green spaces and proximity to the city centre.
- Lewisham: Benefitting from regeneration projects and growing interest from buyers and renters alike.
East London (Zones 2-6):
East London is a region transformed, with ongoing development and improved infrastructure. It boasts:
- Tower Hamlets: Includes areas like Canary Wharf, offering high rental yields.
- Hackney: Continues to attract young professionals with its cultural scene and nightlife.
West London (Zones 2-6):
West London combines affluence with cultural diversity. Key areas for investment are:
- Hammersmith and Fulham: Known for excellent schools and transport links, it’s a draw for families.
- Brent: Hosting Wembley Stadium and undergoing substantial redevelopment, it offers promising investment prospects.
Each of London’s zones and boroughs presents unique characteristics and investment prospects. From the thriving, high-end markets of Central London to the burgeoning outskirts with regeneration projects, the city caters to a diverse array of investment strategies and preferences.
Property Types in London and Their Potential Returns
Residential Property Types:
- Flats/Apartments: Often found in both the bustling city center and suburban areas, flats appeal to professionals, students, and small families. Expected rental yields can vary widely, from around 3-4% in high-end Central London zones to 5-6% or more in emerging areas.
- Single-Family Homes: These properties, particularly in sought-after boroughs with good schools and transport links, attract long-term tenants. Rental yields might be lower compared to flats, often between 2-4%, but capital appreciation can be significant over time.
- Terraced Houses: Common in both inner-city and suburban zones, terraced houses combine the space of single-family homes with the urban convenience of flats. They typically offer yields similar to single-family homes but can be higher in up-and-coming neighborhoods.
Commercial Property Types:
- Offices: Demand for office spaces in London remains robust, especially in business hubs. However, shifts towards flexible working could affect future returns. Yields average around 4-5%.
- Retail Spaces: Retail can be risky given shifts in shopping habits, but prime locations or spaces adaptable for pop-ups and experiential stores may yield 4-6%.
- Warehouses: As e-commerce thrives, so does the demand for warehouses. Located primarily in outer zones, these properties have seen yields increase, potentially reaching 5-7% or higher.
These properties combine residential and commercial spaces, offering the best of both worlds. Yields will depend on the commercial tenant mix and residential occupancy rates but can be lucrative, particularly in high-footfall areas.
- Residential: Capital appreciation is traditionally strong, especially in established or swiftly gentrifying areas. London’s constant demand helps safeguard against extreme fluctuations.
- Commercial: Commercial properties may see steadier rental incomes but can be more sensitive to economic cycles. However, they often offer longer lease terms, which can provide stability.
- Mixed-Use: These properties can buffer against market volatility by diversifying income streams. They can provide both solid yields and capital growth opportunities.
Investors in London’s property market must balance the potential for higher yields against the risks and growth prospects. While rental income can provide steady cash flow, the long-term increase in property value often represents the most substantial component of total return on investment, particularly in a city with London’s enduring appeal.
How Much Do You Have to Spend on a London Property?
Property prices in London are higher than in other parts of the UK due to high demand, limited supply, and the city’s desirability as a place to live.
According to Plumpot, the average property price in the London region is currently £718k, and the median price is £525k.
The average price of a London property increased by 7% (£45.6k) over the last twelve months (March 2022 – February 2023). The average price of a property in the UK was £360k, and the median price £275k ( March 2022 – February 2023).
As of the latest data leading into 2024, for a rough idea:
- Starter Homes: For a small flat or studio in an emerging borough, prices range from around £250,000 to £300,000.
- Mid-Market: For a mid-range property, like a one or two-bedroom flat in a good location, expect to spend anywhere between £400,000 to £700,000.
- Premium Properties: Luxury apartments or larger family homes in sought-after areas can quickly require £1 million to £3 million or more.
Buy-to-Let Investments in London
In less than two years, the number of prospective London tenants tripled, while the number of available rooms in the capital has considerably declined.
According to SpareRoom, since the pandemic lockdown in early 2021, the number of people looking to rent a room in London has increased to 106,000. Over the same period, the number of available rental rooms has shrunk to less than 15,000.
The average monthly rent for a room in a shared house or apartment in London reached £933 in October 2022. This is up 17% from pre-pandemic levels. At the start of 2023, the average monthly rent for a two-bedroom apartment was £2,226, an increase of 19% compared to February 2020.
In 2024, Savills predicted an increase of 5.5% in the average London rent across all property types. As many workers continue to return to the office – whether a full-time or hybrid model – commuter hotspots, like those on the Crossrail line, will continue to draw high yields.
Finding the Right Property in London: Where is the Best Place to Buy an Investment Property in London?
London is always changing and as different areas of the capital become more popular or fall out of favour with homebuyers and investors, the price of property can change. When it comes to where to invest in London, choosing the right place at the right time can result in significant profits so it’s important to keep an eye on changing trends.
That said, some areas stand out as being particularly attractive for property investors. If your only concern is purchasing a property that is likely to increase in value, one area not to miss is South London’s Croyon.
Leon House, Croydon
If you’re considering buying an apartment in London, Croydon is undergoing rapid transformation thanks to new retail, dining and development getting underway. One of London’s fastest-growing economies, Croydon is not only home to a diverse range of tech and startup businesses but boasts good transportation networks with road, rail and tram connections to central and south East London. The reinvention of Croydon with the likes of Tech City and Ruskin Square has caught the eye of many property investors looking to make good returns.
Leon House is a transformed office building built in 1965, reinvented into 263 luxury one and two-bedroom residential apartments. Designed for changing lifestyles, it offers a focus on work-life balance with features such as a resident’s coworking space, private dining room and roof garden.
Located in a prime commuter corridor, 13 minutes from Central London, it makes a good long-term investment for those considering a London property. Prices start at £335,000 and with Croydon’s location and regeneration, the property could generate great yields for investors.
In contrast to its neighbouring boroughs of Brixton and Peckham, Herne Hill has not yet experienced a huge surge in popularity. Increasing property prices around the area make Herne Hill a good bet for investors seeking value for money in an area that is likely to grow in popularity in the near future.
According to Rightmove, the sale cost of apartments in Herne Hill last year was close to £500,000. Semi-detached houses recorded prices close to £1.5 million. Prices have increased by 10% since pre-pandemic levels.
St John’s Wood
NW8 is experiencing a property market boom. According to Rightmove, the current average price of flats in the area is just below £1.2m. There has been an 11% increase in sale prices since the peak in 2018, indicating growing demand for properties.
Acton is an attractive option for buyers looking to get onto the property market. The new train connections between Acton, the City and Canary Wharf have made the area more appealing, alongside a potential £1 billion project to revamp the Acton Station area with 850 new homes, office space, cafes and restaurants.
According to Rightmove, properties in Acton had an overall average price of £874,543 over the last year.
Is London Property Investment a Good Avenue for International Investors?
For international investors, London remains an attractive investment option. With the devaluation of the pound, investing in Sterling from other currencies has become popular due to its lower rate against the US Dollar.
The falling value of the pound has drawn a lot of interest from investors with US Dollar-pegged currencies in particular. These investors can get more for their money and benefit from the city’s capital appreciation and a rising exchange rate.
With a weaker pound, foreign investors are capitalising on investment opportunities. Property was 25% less expensive at the end of September last year than in June 2021 for overseas investors. Foreign buyers were responsible for 57% of the investment into London property in 2022. This should continue, as favourable exchange rates could provide more relative bargains to foreign investors.
Another benefit for overseas investors looking into investment in London property is that the buying process is more or less the same as it is for UK nationals with few restrictions. For foreign investors in London property, buyers do not need to be a UK resident or plan to live in the UK.
However, it’s important to note that an additional stamp duty tax does now apply to foreign investors. This 2% stamp duty charge is on top of the existing rate of tax and calculated on the value of the property.
If the overseas investor is a first-time buyer in the UK, they can qualify for a first-time buyer tax rate for properties less than £300,000 in value. Read more about being a foreign investor in the UK property market.
Legal and Regulatory Considerations
For both locals and foreigners, the property buying process in London follows a structured path. However, non-resident buyers need to consider additional factors such as international money transfers, visa regulations, and potential additional taxes.
- Locals: The process typically involves appointing a solicitor, arranging a mortgage, making an offer, conducting surveys and searches, exchanging contracts, and finally completing the sale.
- Foreigners: In addition to the above, foreign buyers need to establish their identity and source of funds more rigorously due to anti-money laundering regulations. They may also face restrictions on how much they can borrow and need to consider the impact of exchange rate fluctuations.
Important Property Laws and Regulations:
- Planning Permissions: Understanding local planning permissions is crucial, especially if intending to develop or significantly alter the property.
- Building Regulations: Compliance with building regulations, which cover structural integrity, fire safety, energy efficiency, and more, is mandatory.
- Leasehold vs Freehold: It’s essential to understand the difference between leasehold and freehold ownership, as they entail different rights and responsibilities.
- Right to Rent: Landlords must check that tenants have the legal right to rent property in the UK, with specific requirements for checking and retaining copies of tenants’ immigration documents.
- Stamp Duty Land Tax (SDLT): SDLT is payable on property purchases over a certain threshold, with higher rates for additional properties and potentially non-residents.
- Capital Gains Tax (CGT): CGT may be payable on the profit when selling a property that is not your primary residence. Non-residents are also liable for CGT on UK property sales.
- Income Tax: Rental income is subject to income tax, and non-resident landlords have specific rules for paying tax on rental income earned in the UK.
- Inheritance Tax: Should be considered for estate planning, as UK property may be included in the estate of both residents and non-residents for inheritance tax purposes.
- Annual Tax on Enveloped Dwellings (ATED): ATED applies to companies that hold residential property in the UK worth more than a certain value.
Ownership Structures and Legal Entities:
Setting up a UK-based company or purchasing as an individual can have different tax and legal implications. International buyers sometimes use corporate structures for tax efficiency, privacy, or other reasons.
Financing London Property Investment
Mortgages and Loans:
- Securing Mortgages: The process generally starts with a mortgage in principle, giving you an idea of how much you can borrow. You’ll need to provide proof of income, undergo credit checks, and provide details about your financial history.
- Considerations: Interest rates, fees, loan terms, and the mortgage type (fixed-rate, variable-rate, interest-only, etc.) should be carefully evaluated. Also, consider the loan-to-value (LTV) ratio, as a lower LTV typically means better interest rates.
- Buy-to-Let Mortgages: These are specifically for properties you intend to rent out. Lenders will consider potential rental income in addition to your financial circumstances.
Cash Purchases vs. Financing:
- Cash Purchases: Buying with cash means no interest payments and often a quicker transaction. It may also make your offer more attractive to sellers.
- Financing: Mortgages can free up your capital for other investments or liquidity. They can also provide tax benefits, as mortgage interest is an allowable expense against rental income for buy-to-let properties.
The Role of Credit Scores and History:
- Credit Scores: A good credit score is crucial for getting a mortgage with favorable terms. Lenders use it to gauge your reliability as a borrower.
- Credit History: Lenders will look at your credit history, including past mortgages, loans, credit cards, and payment records, to assess risk.
- Non-Residents: For foreign investors, the process may involve more scrutiny. You might need a larger deposit and face higher interest rates. Some UK lenders may require non-residents to have a UK bank account or a certain amount of time spent in the UK.
Foreign Investors and Currency Risks:
If you’re an international investor, currency fluctuations can impact the cost of your investment when converted to your home currency. Some opt for currency exchange contracts to mitigate this risk
Legal and Financial Advice:
Professional advice from mortgage brokers, financial advisors, and solicitors can guide you through the complexities of financing a property investment in London, ensuring you understand all obligations and make the best decision for your circumstances and goals.
Selling the Property:
- Timing: The timing of a property sale can significantly impact the return on investment. It’s often best to sell when the market is strong and demand is high. Keep an eye on market trends, economic indicators, and upcoming developments that may influence property values.
- Methods: The most common method is through estate agents, who can market the property to potential buyers. Auctions are another option, particularly for properties that might attract quick interest or are unique in some way.
- Equity Release: If the property has increased in value, refinancing can allow you to release some of the equity for other investments or personal use.
- Better Terms: Refinancing can also be a strategy to secure more favorable mortgage terms, such as a lower interest rate, which can improve cash flow if you’re holding the property to rent.
Property Inheritance Considerations:
- Estate Planning: If your investment property is part of your estate, it’s crucial to consider inheritance tax implications and the legal transfer of ownership.
- Setting Up a Trust: Some investors choose to place their property in a trust to manage how it’s inherited and to potentially address tax efficiency.
- Life Insurance: Holding a policy to cover inheritance tax liabilities can be a way to ensure that beneficiaries are not forced to sell the property quickly and potentially under market value to meet tax obligations.
1031 Exchanges (UK Equivalent):
While 1031 exchanges are specific to the US, the UK has similar schemes like “rollover relief,” which can defer capital gains tax if you reinvest the proceeds of a sale into a new property under certain conditions.
Transferring property as a gift to family members is another exit strategy but comes with potential tax implications that should be carefully considered with legal and financial advice.
In any exit strategy, the key is planning and seeking professional advice. Tax laws and financial regulations can be complex, and a well-thought-out approach can maximize benefits and minimize liabilities.
Is it Worth Buying Investment Property in London?
Overall, London property investment is a sound choice for investors and tends to fare well whatever the economic environment. For buy-to-let investors, demand for properties is on the rise in both the residential and student market.
- New Regulations for Landlords
Something buy-to-let investors should keep in mind before purchasing an investment property London is changing regulations. The laws on energy efficiency in rental properties are about to change, including the EPC (Energy Performance Rating) for rental homes.
Landlords currently need an EPC rating “E” to rent out a property, but from 2025, all new tenancies must have a “C” rating. Landlords with existing tenancies have until 2029 to bring their properties up to “C” standard.
Existing landlords will need to carry out work to bring their property to the required rating, and still have plenty of time to do so. Those entering the buy-to-let market should ensure that the property they buy has that “C” rating.
- Renter’s Reform Bill
Other legislative change that could impact buy-to-let investors is the Renters Reform Bill, which removes the rights of landlords to initiate “no fault evictions” – allowing landlords to repossess their properties from tenants without having to establish fault on the part of the tenant. This would make it harder for landlords to get their property back from renters if they needed to sell in a hurry.
Why is it so Hard to Buy Property in London?
Buying property in London is challenging due to several factors:
- The high demand for property in the city, especially in prime locations, drives up prices and creates fierce competition for buyers.
- Property prices in London are high compared to the UK average, making it difficult for many people to afford to buy a property. Foreign buyers and investors also contribute to the competition and often have significant financial resources that drive up prices.
When it comes to how to buy property in London, all these factors combine to create a challenging environment for those looking to purchase property, particularly for first-time buyers or those with limited financial resources.
Is it Still Worth Buying a Flat in London?
Investment in London residential property usually makes a sound investment strategy. London is a global city, hub of economic activity and has endless cultural and recreational appeal which makes it an attractive location for property investment.
Property prices in London have historically increased over the long term, and rental demand is consistently high and growing, providing opportunities for buy-to-let investors.
The question for investors regarding their London investment property is whether it makes sense to buy something in the current economic climate. Foreign and cash buyers are at a significant advantage and can make the most of the opportunities to get on the ladder in one of the world’s most important property markets.
Property prices in London are unlikely to crash due to lack of supply and the fundamentals of the property market. For investors taking a long-term view there is still much to gain by owning a flat in London, particularly with the competitive and soaring rental market.
The key for property investors is spotting the opportunity and negotiating the best price in the current climate. Developers with completed stock may be a good target. Developers will usually be willing to negotiate the best price as unsold completed properties cost a developer money when they want to move on.
Despite some ups and downs over the years, the London property market always remains relatively robust and is considered a safe haven, continually attracting investors from home and abroad. The best areas to invest in London are those that are up-and-coming or in locations that are sought-after by commuters.
Generally, investors know they will always be able to make an exit and as a business hub with a growing population, there is always strong demand for rental properties. With plenty of apartments to buy in London, there’s much opportunity for investors to make decent rental yields. Investors should consider changing trends in the new normal, such as more integrated work-life balance, the priority placed on having extra space and location. To find out more about property investment in London, get in touch with our experts today.