Hampstead Buy to Let sees returns of 7.95 % in 2016

Posted on March 31st, 2017.

Well, as the spring begins I remembered that a few days before the Easter Holiday, I got chatting with one of my out of town landlords who was back in Hampstead visiting his family.  Brought up in Hampstead, he went to the Hampstead School for Boys back in the 1970’s and is now a University Lecturer in central London.  To enhance his retirement, he has a small portfolio of four properties in the suburb and wanted my advice on where to buy the next property in Hampstead (as he lives in a college owned flat and anyway, would never dream of buying where he lives in Kensington (where the average value of a flat is £1.62m and a house £4.1m.  Eye-watering to say the least!!).

Before I could advise him, I reminded him that the most important thing when considering investing in property is finding one with decent rental yields for income returns, yet at the same time, it must have the potential for capital growth from rising house prices over time.  Going into 2017, Hampstead landlords will be under more pressure to find the best permutation of yields and capital growth, as extra stamp duty charges for buying properties and a squeeze on mortgage interest relief will raise their costs.

However, (you knew there would be a however) before we look at yield and capital growth, one important consideration that often many landlords tend to overlook, is the propensity of how likely the rent will increase.  Interestingly, the average rent of a Hampstead property currently stands at £3,398 per month, which is a fall of 7.5% compared to twelve months ago (although it must be noted this fall in rents is for new tenancies and not existing tenants). See the graph below that illustrates this trend – (Source ONS ~ Office of National Statistics)

March 2017 - week 4 - graph

Anyway, back to yield and capital growth, the average value of an average Hampstead property currently stands £1,541,700 meaning the average yield stands at 2.2 % per annum, which on the face of it, many landlords would find disappointing. That is the problem with averages, so if I were to look at say just apartments in Hampstead which are the sort of properties a lot of landlords buy, in Hampstead over the last 12 months, according to the Land Registry, the average value achieved for all of the apartments in the area is £885,000 whilst the average rent for all apartments is £3,326 per month (remembering these are still averages), giving an average yield of 3.75 %. However, if that wasn’t high enough, there are landlords in Hampstead who own some specialist properties that are achieving even higher than that (e.g. Student or Houses under Multiple Occupancy) – again it comes down to your attitude to risk and reward (give me a tinkle if you wanted a chat about those sorts of properties – although they can be fun and games!)

Ultimately investors want to be making gains from both rent and house price growth.   When combined, the rental yield and capital growth gives you the return on investment, and that is what I told our University friend from Kensington. Return on investment is everything. So, looking at property values in Hampstead have risen in the last year by 4.2% …. Which means the current annual return on investment in Hampstead for a typical apartment is 7.95 % a year…. not bad.

Whether you are a soon to be new landlord or existing seasoned landlord in Hampstead, you might be interested in a blog about the Hampstead Property market, where you will find similar articles to this one about what is happening in the Hampstead Property market …. The web address is www.nw3propertyblog.com  …. and to answer the question on what he should buy, well on the same blog, once or twice a week, I post what I consider to be the best buy to let deals in Hampstead, irrespective of which agent it is being marketed with.