All You Need to Know About Property Investment in London

Wed, 06 Apr, 2022

London is considered to be one of the best cities in the world. This exotic cosmopolitan is the most visited city in the world. The iconic landmarks and buildings of London represent the city's traditional architecture with a history of over 2000 years. With a rich history, lifestyle, better growth opportunities and more, there are countless reasons why London is one of the most desirable cities on the planet. People worldwide are exploring options to invest in London, given its demand and promising future.

Why Invest in London?

The bustling metropolis of London is known for creating newer investment opportunities each day. As a result, people often look for exciting investment avenues in London for rewarding returns. 

Apart from being the capital of the United Kingdom, London is a densely populated multicultural city with people of over 270 nationalities. With the growing population, the demand for housing is always prevalent here and hence, investing in London properties is a viable investment option.

Here's why people are eagerly investing in property in London.

Good City to Live in

London has always been at the centre of attraction for global investors. The main reason behind this is to gain profits from rentals or resale in the long run. Many individuals desire to live in London because it is one of the most advanced cities in the world. With a diverse, multicultural population, it is an ever-growing economy.

Developed Infrastructure

London is known as one of the most advanced cities in the world. One key reason to invest in London real estate is its well-developed infrastructure. The city has unrivalled transport links, including the popular London tube network and five international airports. Beyond connectivity, London is home to numerous businesses. Even after being densely populated, more than 30% of London is covered in green spaces, and almost 60% of the city has open space.

Land of Opportunities

London has something for everyone, and people around the world move here to either study in top universities, build a career or settle down for good. This indeed makes London a safe haven for investors relying on rental yields.

Consistent Demand

London is one of the biggest financial hubs in the world. The city has always attracted people specialising in different fields. With the increasing population, there is consistent demand for new housing properties. Hence, investing in a London property is a rewarding investment.

High Capital Appreciation

Being one of the most expensive cities to live in, the capital appreciation in London is strong. While investors can choose from a wide range of metropolitan and suburban areas, the rental yields remain high across the city. This is mainly because of the high demand. So when you make a well-researched property investment in London, you have a chance of reaping significant returns.

Transparency in Property Market

The regulatory body of the UK government has designed an easy and convenient framework for investors to keep the market transparent. All the required data and information is easily available and there aren't any prohibitions on real estate ownership all around London.

Best Places to Invest in London

London being one of the largest cities in the world, it is majorly divided into five parts, i.e. Central London, North London, South London, West London, and West London. Given the diversity of the city of London, an ideal place for investment in London may be different for different investors. It completely depends on your budget and long term expectation from the real estate investment in London.

Here is a list of some of the most prominent areas to invest in London in 2022.

1. Battersea

Battersea is hands down one of the best areas for London property investors. The area has an outstanding potential right in central London. Battersea is ideally suitable for individuals looking for a comfortable yet affluent lifestyle. The area is home to the famous Battersea Park Battersea provides a unique blend of history and modernism. Property investors in London will find many exciting options overseeing the Thames river around this area.

The average price of a house in Battersea is GBP 850,000.

2. Richmond

Richmond is one of the most popular residential areas of London. Many factors to its advantage include good schools, amenities, an abundance of greenery, and the lowest crime rates. This riverside neighbourhood is a popular tourist spot with restaurants, pubs, and shopping avenues. Richmond hosts premium houses for those who desire a lavish lifestyle in a Georgian or Victorian setup.

The average property price in Richmond is GBP 1.05 million.

3. Camden

This popular neighbourhood in the UK is best known for its market, amazing nightlife and association with art. Apart from being a popular destination for visitors, Camden is one of the highly desired places to live. It is considered to be an exciting place for young professionals looking for properties in central London.

The average property price in Camden is GBP 1.02 million.

4. Kensington

Kensington is accounted as one of the premium locations in London. It is an upmarket locality and relatively higher on budget. Cafes in Kensington are a major attraction for visitors. With numerous bars, cafes and restaurants, this area is an ideal hub for socialising in London. You will find a wide range of residential buildings with prolific architecture and a wide stretch of parklands.

The average property price in Kensington is GBP 1.4 million.

5. Westminster

The political centre of the United Kingdom, Westminster, is a plush neighbourhood in central London. Being home to Buckingham Palace, this area is one of the most desirable places for London property investment. Westminster is also a popular tourist attraction with excellent connectivity.

The average property price in Camden is GBP 1.08 million.

6. Mayfair

Arguably one of the most affluent localities of London, this beautiful neighbourhood boasts aristocratic architecture. The beautiful streets of Mayfair are known around the world. Mayfair is located around London's iconic attractions, including the Royal Academy of Arts, Big Ben, The Palace of Westminster, etc. The area is categorised by the natural scenery combined with elegant architecture.

The average price of a flat in Mayfair is GBP 1.8 million, while a house may average up to GBP 12 million.

7. Brixton

Brixton is a pure example of modern London. This multicultural locality in South London is known for its community spirit. Brixton is highly popular among young professionals for its food, bars and socialising scene. It is considerably cheaper to buy properties here than many other areas of London. Houses in Brixton are a good mix of new and old buildings. The area is well connected with public transport.

The average price of a flat in Brixton is GBP 450,000, while the average price of a house should be around GBP 820,000.

8. Greenwich

Known around the world for being a centre of time, Greenwich is a good place to live for those who wish to stay distant from the bustle of London. Here, you will find slower and quieter surroundings as compared to Central London. The area is widely popular among financial professionals in London and is a good place to invest for decent rental yields in the long run.

The average price of a flat in Greenwich is GBP 530,000, while the average price of a house is GBP 1.05 million.

9. Havering

Located on the outer side of London, Havering is one of the largest boroughs in England. It is the best bet for people looking for a cost-effective investment in London property. With green covers spread all across the neighbourhood, this area in East London is full of open grounds, recreation parks, farmland, and more. Havering is well connected to other parts of the city with the expansive tube network. Major attractions here call for nature enthusiasts to explore zoos and nature parks.

The average price of a house in the London Borough of Havering is GBP 370,000.

10. Clapham

The area transformed into an affluent neighbourhood over the last few years, Clapham has evolved into a vibrant community in London. It brings the best of both worlds where a part of Clapham has the finest open green spaces while the other hosts high street bars, restaurants, and delis. As a result, it is a highly desired area for those looking for investment in London property. Residential properties here are a great mix of old homes and newer buildings.

The average price of a flat in Clapham is GBP 530,000, and a house averages to GBP 1.6 million.

How to Manage Finances for Property Investment in London?

London is one of the most expensive cities in the world. The average house price in London is higher than anywhere else in the UK and most global cities. As a result, investors in London Properties often seek external finances to buy a property. If you are planning to invest in a UK property, you need to be mindful of how much amount can be borrowed for property investment.

Generally, most banks allow you to borrow a maximum of 4 times your annual income. Hence, if you earn GBP 40,000 per annum, you can borrow up to GBP 160,000. However, if you are buying a property with a partner, you can get a maximum of 4 times your combined income. 

Several other factors are taken into consideration like debt history, credit rating, spending habits, area of business or service, etc. Therefore, it is imperative to get an idea of how much mortgage can you avail yourself as a part of your research before investing in a London property.

Cost Associated with London Property Investment

The property market in London is an ever-growing market. The investors show keen interest in real estate, given the capital appreciation based on consistent demand. While you might have researched the cost of properties in London, you also need to consider other costs associated with property ownership, such as:

  • Property Valuation fees 
  • Legal charges
  • Council tax
  • Search and Survey Fees
  • Initial Mortgage
  • Land Registry fees 
  • Stamp Duty
  • Value-Added Taxes (VAT)
  • Home Insurance

The charges may vary for different neighbourhoods across London, and some districts may have different provisions for property investment. 

The Property Buying Process

The process of buying an investment property in London is quite straightforward. It mainly includes the following steps.

  1. The developer or the existing owner appoints a real estate agent to find potential buyers for the property.
  2. The investor's offer is passed through the agent. The agents may go through your finances for investment and several fact checks.
  3. The seller will then draft a sales agreement. Once both parties agree upon the terms and conditions, the buyer and seller can officially proceed with the property exchange. The buyer has to pay the deposit around this time.
  4. The remaining price needs to be paid off either in instalments or lump sums as agreed between the buyer and seller.
  5. The investor only becomes the property owner after registering the exchange transaction with the Land Registry. The investor also needs to pay the Stamp Duty tax to the land registry.

Tax Considerations for International Investors

If you are an overseas investor, you need to adhere to the relevant tax considerations. There may be different regulations in different areas across London and the UK. However, you will be paying certain taxes all across the geography.

  1. Stamp Duty Land Tax - SDLT. The rate of SDLT largely depends on the total cost of the property. SDLT is categorised as below:
  • Less than or equal to GBP 125,000 = 0%
  • Between GBP 125,001 to GBP 250,000 = 1%
  • Between GBP 250,001 to GBP 500,000 = 3%
  • Between GBP 500,001 to GBP 1,000,000 = 4%
  • Between GBP 1,000,001 to GBP 2,000,000 = 5%
  • More than GBP 2,000,000 = 7%

Capital Gains Tax

If you purchase a property as an investment and if the property value increases, you may have to pay Capital Gains Tax on the increased amount at the time of selling off the property. If the property is registered under a company, it is liable for corporation tax. However, if the property is in your name, there is no Capital Gains tax when you sell the property.

Suppose the property is bought for trading or development. You will be liable to pay the Income Tax (for individuals) or Corporation Tax (for companies or a company representative) on any profits on the development or trading of your property in London.

You need to pay the tax on rental yields if you rent your property, which is around 40%.

Inheritance Tax

Inheritance Tax needs to be paid on the properties of individuals who either pass away or give their property to others. Ideally, there is a 40% inheritance on property value above the dedicated threshold. However, there is no inheritance tax in case the value of the property is below GBP 325,000.

The threshold can also increase up to GBP 500,000 if you give away the property to your children or grandchildren.

If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold can increase to £500,000.

Annual Charge

The UK Government imposes a holding charge for residential properties owned by non-UK individuals with a valuation of over GBP 2 million owned by non-UK-domiciled persons. The annual charge may range from GBP 15,000 to GBP 140,000, depending on the total value of the property. 

If you invest in a London property and are a non-resident, you can considerably reduce taxes. You can also eliminate tax on any gains in the property's value. This involves the rules of UK residence, regulations related to domicile and several other factors. You can consult a legal expert to understand all the aspects of property investment in London and the UK.

FAQs

Is London a safe city to invest in?

Investing in a London property is a considerably safe investment because the volatility of the UK property market is much lower than other global cities. This is mainly because of the high demand for quality housing. London is also known for its ability to overcome adverse situations like financial crises and the pandemic. Therefore, London is surely a safe city to invest in with a stable economy and ever-growing demand.

How to choose the most suitable property in London?

There are numerous options for property investment in London, and deciding the best suitable one can be a task. You should take enough time for research to make a final decision. Seek expert advice if required and ensure that the property is affordable.

Here are some of the fundamental factors to be considered while investing in a London property.

  1. Location
  2. Connectivity
  3. Affordability
  4. Expected ROI - Price projection

Can I obtain UK Citizenship through investment?

The investment visa lets you and your dependents live in the UK and makes you eligible for UK citizenship if you meet the eligibility criteria like minimum investment amount.

The investor, along with dependents including spouse and children under 18 years of age, can apply for UK citizenship by investment only after one year from receiving permanent residence. Therefore, it is crucial not to travel outside the UK for more than 90 days.

You can apply for permanent residency in the UK after five years of obtaining an Investor Visa if you have invested GBP 2 million or more. You can also apply for PR after two or three years if your investment is above GBP 10 million or 5 million.