Many people feel anxious and uncomfortable when getting themselves into debt and understandably this is why many of us strive to pay off our mortgages as quickly as possible. But financially, this is not always the best decision when long-term debt is used as a tool to create wealth.
For many landlords, effective use of gearing has been the key to getting the most from their buy-to-let properties, and that largely explains why in inner London, the total amount owed per landlord through buy-to-let mortgage borrowing is £1.1m, according to research by Howsy.
The study also shows that the total amount owed per landlord through buy-to-let mortgage borrowing in outer London is £811,000.
This equates to just 24% of the average buy-to-let portfolio value in both areas, with London landlords owing a relatively small proportion of their portfolio value, second only to the South East of England in terms of all areas.
The lowest average yield of all the regions across England can be found in outer London, at an average of 4.8%, just above inner London at 5%.
The average rent earned per month is still by far the highest in inner and outer London, at £2,453 and £1,697 respectively.
The only other regions to see average rental income above £1,000 a month are East of England, South East and South West.
Landlords in inner London have an average portfolio of 7.7 properties, increasing to 7.9 in outer London.
In inner London, the average buy-to-let portfolio is worth £4.5m on average, the highest of any region.
The average buy-to-let portfolio in outer London is £3.3m, which may be lower than inner London, but is higher than any other region.
Some 28% of landlords in inner London saw their tenants fall into rental arrears over the past 12 months, the lowest of all regions.
In outer London, the figure was under 40%, but was higher than the East of England, South East and South West.
Over the last three months, however, this figure has fallen to 31% in outer London.
Along with the South West, this is the lowest level of arrears of all regions other than inner London, where just 24% of landlords have experienced arrears.
Callum Brannan, founder and CEO of Howsy, commented: “When investing in a buy-to-let there’s a whole host of criteria to consider above and beyond the yield available.
“Demand plays a huge part in the success or failure of your investment and so other criteria such as void periods should be carefully considered.
“It’s all well and good securing a higher yield, but if your property remains empty for a larger proportion of the year this will dent your profitability.
“Tenants can also have an impact while in situ and a tenant that isn’t paying can be tricky and expensive to get rid of while reducing your profit margins at the same time.
“While this is a problem throughout the market, London offers the best chance of a better quality tenant and all things considered, the capital is one of the best segments of the buy-to-let market.”