5th November 2016
On Friday we managed to complete two deals, one in St John’s Woods and the other in Quebec Court, W1. This day happened to be Dhanteras. This auspicious day is celebrated two days before the festival of lights, Diwali.
On Dhanteras, Lakshmi – the Goddess of wealth – is worshiped to provide prosperity and wellbeing. It is also the day for celebrating wealth, as the word ‘Dhan’ literally means wealth and ‘Tera’ comes from the date 13th.
The completion date was not arranged by design, but by coincidence. The property in Quebec Court was actually supposed to complete two days prior, however due to a contentious unforeseen service charge, the completion took place later.
I have no doubt both properties will bring wealth for the investors involved. Both are below market value, the one in Quebec Court, in Seymour Place, has the added advantage of benefiting from the ability to short let which could return a rental yield in the double digits.
It’s location in Marble Arch is in the epicentre of the West End and is attractive to tourists; and offers a cheaper stay when compared to the Cumberland Hotel which is around the corner.
Another deal was also agreed on Friday, which is for a 38% below market value property, freehold in Marylebone. The property is finished to a high standard, and is ready to rent with very little down side. There is no planning risk and being freehold no managing agents to contend with; it too can be rented very easily on a short term basis.
As property prices have increased strongly since 2009 with a dampening of the market only recently, rents have not kept pace with this rise. Typically, the rental yield on a centrally located property will now be between 2-3%. This has severely impacted the amounts you can borrow. The amount one can borrow is now less based on the actual value and more on the rental of the property.
It used to be the case where you borrow at 75% loan to value subject to a rental cover of 125%, meaning if your mortgage is £100 pm your rent needs to be £125.
As prices have increased now the rental cover decides how much you can borrow. This is going to increase even more. A major BTL lender is bringing in a rental cover of 145%, based on an interest rate of 5.5%. This is to accommodate the removal of the interest relief on rental income which is likely to be introduced in 2017.
The consequence of this policy will mean buyers will need a higher deposit when purchasing property. I suspect this will lead to a move to outside of London where yields are much higher, and also there will be an increase in investing in property through online platforms. The move to investing via online platforms will negate much of the risk in holding properties directly, making the process smoother and hassle free.