Should You Invest in London Property? My Case for Looking Elsewhere
December 28, 2024
Should you buy a rental property in London? In my video published on 28 December 2024, my short answer was probably not. That wasn’t because I thought London was an undesirable place to live or because nobody could make money there. It was because, for the sort of investment I wanted, I thought my capital could work harder elsewhere.
I was comparing the price of a property with the rent it could achieve, the borrowing needed to own it and the scope for future growth. Those are different questions from whether a location is prestigious or whether you would enjoy living there yourself.
This article sets out that historical argument. The figures from the recording describe my examples and views at the time; they aren’t a current London rental-yield survey or a promise about what happens next.
You can watch my original London property discussion on YouTube. The central question is whether the actual deal supports your investment goal after the costs, rather than whether the address sounds impressive.
A desirable place can still offer a disappointing rental yield
Rental yield compares annual rent with the property’s purchase price or value. If the price rises much faster than the rent, the yield falls, even though the owner may have enjoyed a substantial increase in the asset’s value.
In the video, I discussed broad figures of around 4% for London, closer to 5% in parts of the wider area and much lower yields in some central locations. Those were indicative figures used in that discussion, not a single verified dataset covering every borough and property type.
I wouldn’t use a broad London average to decide whether to buy a particular flat or house. There are substantial differences between neighbourhoods, property types and the terms on which someone acquires them.
But the relationship between price and rent is still useful. A £400,000 property renting for £1,800 a month produces £21,600 a year, or a 5.4% gross yield. That calculation says nothing yet about mortgage interest, repairs, management, empty periods or tax.
The word gross matters. It stops us treating the rent as the owner’s return. A property can produce an attractive-looking annual rent in pounds and still leave very little after the costs required to own and run it.
Tenant affordability puts a limit on rent
My explanation for lower yields in expensive locations was affordability. Strong demand for an area doesn’t mean tenants can keep paying more without limit. Their wages and other commitments still determine what is manageable.
A property can appeal to buyers with large deposits, existing housing equity or wealth from elsewhere. The people renting it may be relying primarily on their employment income. Those two groups don’t necessarily have the same capacity to push prices higher.
I used Oxford as another example of the distinction. It’s a desirable place, but desirability doesn’t automatically mean local wages will support rent rising in line with house prices. I wouldn’t rely on the particular salary figure I mentioned as a current local average; the broader point is the gap between housing costs and incomes.
This also explains why raising the rent isn’t always a solution to a landlord’s larger mortgage payment. The lender may charge more because the borrowing rate changes. That doesn’t cause the tenant’s salary or the market rent to rise by the same amount.
For an investor, the right starting point is evidence of achievable rent for the actual property. I would speak to local agents and examine comparable homes, rather than working backwards from the rent needed to make my desired purchase affordable.
My own London property illustrates the difference
I described buying my London-area property in 2010 for approximately £176,000. By the time of this December 2024 video, I put its value at around £400,000. That had been a substantial capital increase over the holding period.
The rent hadn’t risen in the same proportion. I said it could have been marketed for about £1,200 a month at the beginning and around £1,800–£1,900 at the time of recording.
Using those rounded figures, £1,200 a month against £176,000 is approximately an 8.2% gross yield. At £400,000, £1,800–£1,900 a month corresponds to roughly 5.4%–5.7%. These are illustrative comparisons using the values discussed, before costs.
The property could therefore have performed well for an owner who bought years earlier while looking less compelling for a new buyer paying the later value. Both statements can be true at once.
That distinction matters when someone tells you they made money in London. When did they buy? At what price? With how much borrowing? Their successful history doesn’t automatically establish that purchasing the same property today offers the same opportunity.
Larger mortgages make rate changes harder in cash terms
The second part of my argument was about borrowing. The same percentage-point change in interest costs far more pounds when the loan is larger.
I used a £200,000 property with a £150,000 mortgage as one example. At 2%, the annual interest is £3,000, equivalent to £250 a month. At 6%, it is £9,000 a year, or £750 a month. That is an additional £500 each month in interest alone.
Some monthly figures in the spoken explanation were loosely rounded. Those are the precise simple-interest calculations on the stated loan balances. They exclude fees and any capital repayment, and the 2% and 6% rates are scenario assumptions rather than current product quotes.
Now compare an £800,000 property with a £600,000 mortgage. At 2%, annual interest is £12,000, or £1,000 a month. At 6%, it becomes £36,000 a year, or £3,000 a month. The increase is £2,000 a month.
The rate movement is identical. The cash required to absorb it is four times as large because the borrowing is four times as large. Whether the investment can cope depends on the rent and the rest of the costs, not simply on confidence that the location will remain popular.
I’ve explained the distinction between interest and capital payments in my interest-only versus repayment guide. When comparing locations, I want both the rental return and the actual debt payments in front of me.
Why I was looking towards cheaper regional markets
My preference in the video was for parts of the Midlands and North where purchase prices were lower relative to achievable rents. Sheffield was one of the locations I discussed from my own investing activity.
That doesn’t mean every cheaper property is a bargain. Low prices can reflect weak employment, limited demand, poor condition or other difficulties. Buying cheaply only helps if somebody wants to rent the property at a level which supports a sustainable business.
The attraction for me was that prices and rents could have a more favourable relationship. If one location’s property costs three times as much but its rent is only twice as much, the cheaper location has the stronger gross yield on those assumptions.
I also believed affordability could support future demand in those areas. A household’s income can stretch further where the purchase price is lower. That may make it easier to accumulate a deposit and meet the borrowing requirements, although actual mortgage affordability still depends on the lender and the household.
It was my investment thesis, not a guarantee of regional outperformance. Local employment, housing supply, transport, property condition and the wider economy can change the result. A northern postcode isn’t a substitute for analysing the street and the deal.
The £140,000 purchase I discussed
In the recording, I gave an example of a property sourced at around £140,000 with rent of £1,100 a month. That rent produces £13,200 a year, which is approximately a 9.4% gross yield against the stated purchase price.
I also discussed having around £35,000–£40,000 in the deal and an estimated return in the region of 10%–12%. That second percentage is a different measure: a return on the investor’s cash, rather than annual rent divided by the full property price.
The transcript doesn’t provide a complete schedule of finance, fees, repairs, tax and other costs for that property. I wouldn’t turn the spoken estimate into a fully verified net-return calculation. The useful point is to keep the measures separate and build the actual cost model before investing.
For example, a high gross yield doesn’t tell you how much remains after a large repair or an expensive remortgage. Equally, a low deposit can make a cash-return percentage look larger while leaving the investor exposed to more borrowing risk.
This is why I want to know the purchase price, all the money required to complete and prepare the property, the ongoing costs and the reserve left afterwards. One percentage cannot replace those questions.
National wage policy doesn’t affect every housing market equally
I also discussed the national minimum wage. The same statutory rate for an eligible worker applies across England, but the housing costs that wage needs to cover differ greatly by location.
My view was that higher wages at the lower end of the earnings distribution could have more room to support housing demand where property prices and rents started lower. The same increase in income can make a more noticeable difference to affordability in a cheaper market.
That is a possible mechanism, not a guaranteed increase in house prices or a reason to raise rent automatically. Households have other costs, employers may change hours or recruitment, and borrowing criteria still matter.
I was also critical of the government’s approach to wages and taxation. My practical response was to consider how policy might influence demand and costs in the locations where I invested. I can’t control the policy, but I can avoid assuming that its effects will be identical everywhere.
Compare actual deals before moving your capital
My conclusion in December 2024 was that I preferred the opportunities I was seeing outside London. I wanted stronger rental economics and a purchase price that left room for borrowing costs, rather than relying predominantly on future capital growth.
That doesn’t mean an existing London owner should automatically sell. Selling can involve tax, fees and other costs, and replacing a property introduces a new set of risks. The right comparison is between realistic options after all those costs, not an ideal northern deal against the worst London example.
Before buying anywhere, I would check recent sold comparables through HM Land Registry’s sold-price search, investigate achievable rents and test the finances under less favourable conditions. A broad regional view helps choose where to look; the individual property determines what you actually own.
If you’d like to discuss locations and your buying budget, book a free 30-minute call with me. You can also explore Starter Club or find out about Done For You. My preference is to follow the numbers and tenant demand, even when the less glamorous address produces the more useful investment.