Where are the next big hotspots in London?
Last Wednesday, Barratt London – one of parent company Barratt Developments’ largest and best-known brands – held an ‘Investing in London’ webinar via Zoom.
It was moderated by Alice Norman, communications manager at Barratt Developments, and included input from property and finance writer Ann Ashworth, Jennet Siebrits, head of research at CBRE, Marc Von Grundherr, director at London lettings agency Benham & Reeves, Rachel Geddes of the Mortgage Advice Bureau, and Ed McCoy, sales director at Barratt London.
When asked about London’s next major hotspots, Siebrits said those buying as an investment should consider regeneration zones, which generally have higher prices than the wider borough area. Hotspots are likely to include anywhere with a good commute – still important even now – and anywhere with a buzz. Siebrits says investors should look at the masterplan for an area to see what has already happened and what is coming in the future.
McCoy agreed with Siebrits that regeneration hotspots are good places to focus on. Anywhere receiving both public and private investment is typically receiving that investment for a reason.
Investors may want to consider areas with lots of young professionals and a good chance of increased capital growth, McCoy added, citing Hendon and Harrow as two examples of London suburbs with significant capital growth in recent years.
Geddes said lenders are still offering finance to overseas buyers, despite Covid, Brexit and the impeding introduction of an extra stamp duty surcharge on non-UK resident buyers. She says the market is currently buoyant, with good mortgage availability as mainstream lenders come back on board.
The same is the case for the buy-to-let mortgage market, which she argues is ‘really, really strong’ right now, with mainstream, high-street lenders wanting to get back into this arena. As a result, there are some really competitive rates and products. There has also been more clientele, with buy-to-let applications increasing nearly double in the last six months.
Furnished or non-furnished?
One of the biggest questions investors will ask themselves is whether they should let their home furnished or non-furnished.
“It makes no difference to the amount of rent you get,” Von Grundherr said. “It all depends on who your tenant is and the demographic you’re looking at. Generally speaking, people renting studios and one-beds, single people and couples, which most investors steer towards, want furnished. They come with nothing.”
He said 70% of two-beds in London are furnished, while 90% of one-beds are the same.
As for demand, Von Grundherr said there were the same number of lets in 2020 compared to 2019, despite the pandemic. The only difference is demand has been slightly further out, in zones 3 and 4.
There have, too, inevitably been rent reductions – down anywhere from 7%-15% - thanks to the restrictions on travel. The Airbnb-style short-let market has been completely wiped out by Covid, he argued, with owners of these properties switching to long-lets instead. This extra stock has led to downward pressure on prices in prime areas.
In addition, there’s been very, very few overseas students renting in London – with a 90% fall during pandemic times. That’s meant excess supply and reduced demand has caused a fall in prices in prime areas, along with people moving further out. Tenants in prime areas have, as a result, been able to do very well.
But Von Grundherr expects the market to bounce back as universities fully reopen next September and travel begins to be relaxed, along with more people returning to the office. Official figures released last week suggested that more than half of UK workers travelled to their workplace at least once.
“These factors will cause a huge surge in the London rental market. We see there being a boom. We think Q4 and Q1 2022, we see a mini-boom coming. People will move back in, a partial reversal of what’s happened during the pandemic.”
Siebrits added: “We’ve always had migration out of London – people having children, wanting more space - there’s always been the outflow. What we haven’t had this year is the inflow – graduates, young professionals, students, etc. That’s what caused the horror stories about the death of London, 700,000 fewer people living there.”
“I absolutely agree that we will see people return to London as the office reopens. I don’t think it will be cut and dried people going back to the office, I think it will be a hybrid, people back three or four days, similar to how it was before Covid anyway. I think people will want to live back near to the office, with the things driving people towards London returning.”
She says Rightmove and other portals have been showing a surge in people searching for homes to buy and rent in zones 1 and 2.
Will the country’s bigger savings go into property?
Many people – in particular those who have been lucky to remain in work throughout the pandemic – have been able to amass much larger savings than they’ve ever heard with far less to spend their money on. Some estimates have suggested £180 billion in total has been saved by the UK population.
Ashworth asked Siebrits if this money is likely to go into property, with many people getting a new appreciation for homes during the past year.
“A large chunk of it will go into housing,” Siebrits replied. “But also hotels, restaurants, shops. People want experiences. As for property, we see positive headwinds.”
Ashworth believes housing will be used to motor the recovery, with 95% mortgages and the stamp duty holiday helping to turn Generation Rent into Generation Buy.
What is Barratt London’s portfolio?
The housebuilder, which hasn’t been without major controversy in recent years, is one of the capital’s most recognisable and volume-heavy developers. According to McCoy, the Barratt London portfolio currently has circa 12 developments across London, from Hayes Village in the west to Upton and New Market Place in the east.
The gross rental yields you can get across the portfolio generally is between 4-5%, which McCoy says is ‘very healthy’ and compares well with inner London zones.
Connectivity is key to Barratt, and something the firm always considers when looking at a piece of new land. How close to the station is the development, for example.
He says investors want strong rental demand, and what tenants want is an easy commute to London. “We will return to working in offices and people want a 20-30 minute commute maximum, probably shorter than that. Some of the sites are on Crossrail and that will be a fantastic addition to the London network and cut commutes by half, if we ever get to travel on the train, but that’s another story.”
He says investors will be wanting capital growth, which is particularly high in regeneration areas with high rental demand. And a hassle-free investment with no void costs. He says many of Barratt’s developments fit this bill.
You can see the full 55-minute webinar – including tips on what makes for the best investment property type and what tenants now want - in full at the bottom of this article. You can also find out more about the 'investing in London' webinar here.
Should investors be considering Staines?
On Thursday evening, property experts from Berkeley, Savills and Zoopla shared their insights in a webinar entitled ‘The investment opportunity: Staines-upon-Thames – Surrey’s hidden gem’.
Ashworth, former editor of The Times’ Bricks & Mortar supplement, was again in attendance, this time as moderator of the discussion.
On the panel were Grainne Gilmore, head of research at Zoopla, Lawrence Bowles, director of residential research at Savills, and Yolanda Jacob, head of sales at Berkeley St Edward since the start of this year and previously of Barratt and Taylor Wimpey.
The webinar began with Gilmore giving a general summary of the housing market, which has been growing throughout the pandemic despite all the challenges posed. Renters and buyers are both still looking to move, with different priorities than they had pre-pandemic.
Commuting distance is now less of a driver for office workers, with a rapid rise in homeworking during the last year, but it is still a key tool for people narrowing their search. People have reassessed their priorities as a result of lockdown, she added.
Zoopla’s most searched for features at present are gardens, parking, garages and a balcony.
Are off-plan investments a good idea?
Yolanda Jacob said buying off-plan – which is simply when someone purchases something that hasn’t actually been built yet – should be something investors are interested in. With an off-plan development you reserve the home to take it off the market, but it wouldn’t complete for a couple of years after.
This makes it riskier in some senses, but there are advantages too. Jacob says buying off-plan means you’re buying at the earliest stage in development, giving you the best and widest possible choice, with the best pick of the units.
For those buying for investment, she says those buying an off-plan property can achieve better rental yields over time.
With interest rates currently so low, savings are at the moment better off in property than in the bank, she adds.
Where are the best places to invest?
Lawrence Bowles says areas with major regeneration – such as Staines, which has benefited from the Crossrail effect and other large-scale infrastructure projects in recent years – are likely to have seen strong price lifts in recent years.
Connectivity to London is still important, even post-Covid. As an area’s connectivity to the capital improves, the expectation is typically that prices will rise, Bowles says.
“There’s also the Heathrow effect, too, in Staines,” he added. “Most people who work there live nearby. Plus new demographics of those moving out of London.”
Jacob says tenant priorities have changed as well, and they are likely to be more demanding now. Investors looking for maximum tenant demand may want to consider developments with features such as 24-hour concierge, landscaped gardens and courtyards, on-site cinemas and gyms, and (more important than ever) co-working space.
Jacob says Eden Grove, a new residential quarter in Staines from Berkeley, offers the chance for residents to both work in their own apartment or private communal areas – providing the perfect in between option.
She said the trend for remote/agile working had been on the turn even before the pandemic, but is now one of the biggest features, along with gardens and parking.
On the topic of pet-friendliness, an increasing desire from tenants, Jacob says Eden Grove is close to many green spaces and does welcome pets, but residents will need a license.
Gilmore chimes in to add that pet-friendly tenancies are now the fifth most searched for term for renters on Zoopla, highlighting its increasing importance.
Bowles says the town on the Thames is just a 35-minute train journey to Waterloo and has easy access to green space.
During the pandemic, people have wanted to move away from city centres, which have lost their lustre with pubs, restaurants, clubs, museums, theatres, landmarks, cultural venues and sporting stadiums all closed.
At the same time, some people have realised that countryside living – while idyllic – is too far out. They instead want the best of both worlds, Bowles insists.
As well as being 35 minutes from London by train, it also sits just a 10-minute drive from Heathrow. Figures suggest there has been a 58% migration into Staines in recent years, with the town also being in the top 10% of the UK for economic growth.
Alongside strong transport links and plentiful green spaces, it’s also home to the headquarters of a number of global businesses, including BP, Bupa and Salesforce. The combo of cheaper rents and proximity to London would seemingly make it very attractive to business in this regard.
Buy-to-let – will there be further government intervention?
Bowles says there has already been a number of changes making life more difficult for landlords and investors, including the 3% stamp duty surcharge and the phasing out of mortgage interest tax relief.
These won’t be reversed anytime soon, but neither are any further major changes being anticipated. The biggest shift, Bowles adds, has been on sustainability, with rental homes now required to have much better energy efficiency and further changes expected on this soon.
Jacob says a new-build leaves investors with less to worry about when it comes to energy efficiency, with these types of homes constructed with sustainability in mind.
“In a new-build, the heating element and insulation are likely to be better during those long, cold winters,” she said.
She argues that tenants are likely to be looking for a good layout, green space, amenities, gym facilities, co-working space, transport links, and a good sense of community, and new-build developments can provide this.
She describes Staines as a new commuter belt, with new HQs moving there, and a huge number of 24–29-year-olds from the London boroughs moving to Staines. Commercial and retail typically follow this demographic, leading to opportunities for further economic growth.
Jacob says somewhere like Staines is a great place to get in now before it becomes too established and price points become much more prohibitive.
Has Staines shaken off its bad rep?
For many, Staines will still automatically be associated with Ali G, Sacha Baron Cohen’s iconic wannabe gangster who led the ‘Da West Side Staines Massif’. The town has been trying to escape this stain ever since. It even changed its name to Staines-upon-Thames to get away from the stigma.
When this question was raised during the webinar, Jacob – who had been expecting this question to come up – said it was not a fair reflection of modern Staines.
“The town actually has history all around it,” she said. “There is Ascot and Windsor down the road. It’s not as perceived. There’s been huge improvement. It’s a really nice place to live, with food markets, the nearby reservoir, green space. People wouldn’t be putting so much money into it if it wasn’t a nice place to live.”
Bowles says the reason Baron Cohen chose Staines in the first place was the juxtaposition of a ridiculous wannabe gangster being located within such a beautiful place. The joke, he says, was that Staines wasn’t full of Ali G’s, far from it. Most people now realise that Staines is nothing like it was in the programme.
How does an off-plan investment work?
Jacob explains that once an investor has chosen their property, it is taken off the market. There is then 21 days to exchange of contracts, when it becomes a legally binding agreement between buyer and developer. A deposit is paid upfront, and then the rest is paid in installments after this. The initial reservation is partly refundable and depends on how far down the line things have progressed.
What will happen to the property market between now and 2025?
Gilmore says the low-interest rate environment will continue until then as the economy recovers and people are able to spend again. She expects a sustained level of house price growth and a semi-permanent shift of people living further afield.
Bowles argues there is some degree of risk in investment, but things are looking positive right now, with the stamp duty holiday and first-time buyers assisted by Help to Buy and the mortgage guarantee scheme. He expects the economy to ramp up after lockdown and interest rates starting to rise again in the middle of 2024. This will place additional pressure in the mortgage market, which could slow price growth.
“But the outlook in the medium-term is positive, with predictions of 17% price growth over the coming years.”
What should the government be doing that it hasn’t yet?
The webinar closed with the above question. Gilmore said planning was all-important, with everything in gear to make land available where it’s needed. She said there is still an undersupply of homes, which has been affected by Covid.
Bowles agrees that planning is central. “The cost of not building homes is that people are shut out of jobs, kept away from productive workplaces. It benefits the whole country to have well-connected hubs.”
However, he warns that we’ve already been waiting 60 years for adequate planning reform. “There’s not been a lot of progress in that time, but we live in hope.”
You can see the full webinar - which is just over an hour long - on YouTube here.
*As part of the government’s tax day yesterday, an announcement was made about a residential property developer tax, which could affect Barratt, Berkeley and other major housebuilders.
The government says it will ‘publish a consultation on a new tax on the largest residential property developers following the…announcement by the Secretary of State for Housing, Communities and Local Government. The tax will be introduced in 2022 to help pay for the costs of cladding remediation. The consultation will be published in the coming months.”