What is Happening to Hampstead Property Prices in Real Terms?

Posted on March 2nd, 2017.

One of my landlords rang me last week from Redington Road, after he had spoken to a friend of his. Over Christmas, they were discussing the Hampstead property market and neither of them could make their mind up if it was time to either sell or buy property. If you read the newspapers and the landlord forums on the internet, there is a good slice of doom and gloom, especially with changes in the taxation towards landlords, new legislation on checking tenants and the general uncertainty in the world economic situation.

I would admit, there are certain landlords in Hampstead who have over exposed themselves in the last few years with high percentage loan to value mortgages. Those mortgages, with their current (yet artificially low) interest rates, will start to suffer, as their modest monthly positive cash flow/profit, i.e. income (rent) less costs (mortgage, fees, tax), will become negative when the tax and mortgage rates rise throughout 2017 and beyond.

It appears to me these landlords seem to have treated the Hampstead Buy to Let market as a sure bet and have not approached this as a business and, as a result, they will suffer as they thought “Buy a house – rent it out so it covers the mortgage and make a few quid on top”. These are the people who will be thinking twice. I see opportunity everywhere and won’t be stopping, I’m here to stay. It’s going to be an exciting year.

Gone are the days when you could buy any old flat or house in Hampstead and it would make money. Yes, in the past, anything in Hampstead that had four walls and a roof would make you money because since WW2, property prices doubled every seven years … it was like printing money – but not anymore.

True, since January 1997, the average price paid for a Hampstead flat/apartment has risen from £177,376 to today’s current average of £755,936 in the area, an impressive rise of 313.2% and terraced/town house have risen in the same time frame, from £573,608 to £2,105,946, another substantial rise of 253%. However, look back to 2005, and in that year, the average flat was selling for £395,380, meaning our Hampstead property owner would have seen a more modest rise of 91% and the terraced owner would have seen an increase of 116%, as they were selling for on average £973,571 … not bad until you consider inflation.

See the graph below that illustrates this – Source Land Registry

Feb week 4 - 2017 -graph

Since 2005, inflation, i.e. the cost of living, has increased by 35%. That means to retain its value, the Hampstead terraced property bought for £973,571 in 2005 needs to be worth £1,314,320 today. Therefore, our landlord has seen the ‘real’ value of his property increase by 81% (i.e. 116% less 35% inflation).

The reality is, since around 2004/2005, we have not seen nothing like the capital growth in property as in past decades and it is predicted to grow at the rates it has previously done either. Therefore, it is high time anyone considering investing in property stopped believing the hype and did some serious research using independent investment expertise. You can still make money by buying the right Hampstead property at the right price and finding the right tenant. However, remember, investing in Hampstead property is not only about capital growth, but also about the yield (the return from the rent). It is also about having a balanced property portfolio that will match what you want from your investment – and what is a ‘balanced property portfolio’? Well we discuss such matters on the Hampstead Property Blog … if you haven’t been, then it might be worth a few minutes of your time? www.nw3propertyblog.com