Luxury homes: Where are tenants willing to fork out, and what options are available to investors?

It’s been a difficult market for all property participants over the last few months. Homeowners, investors, and landlords have all faced raised costs and legislative challenges. Although, arguably, renters are struggling the most at the moment.

Currently, renters are spending nearly four times as much of their income on housing than homeowners are. This will be particularly astute in London and other prime locations. Average rental prices in the capital have risen to £2,145 according to Goodlord.

Much of this can be attributed to a lack of supply. There are simply not enough rental homes available for the UK’s tenants. In July, Propertymark said there was an average of 13 new prospective tenants registering per available property.

Competition for available space may only ramp up over the coming years too. The number of households aged over-65 renting their home will double to more than one million in the next decade, according to Hamptons.

It’s no wonder that so many are calling for a more sustainable market, with measures put in place to limit costs. In late 2022, our own independent research explored the relationship between landlords and tenants. Of the tenants we surveyed, 73% believed the rental market needed tighter regulation to protect tenants. What’s more, 77% thought more needed to be done to control rental prices in the UK.

But, despite all these pressures, demand is still there for luxury homes in certain pockets of the industry.  If you’re in a position to add prime assets to your portfolio, you may find the market to be surprisingly amenable.  Remember, professional advice should be sought before investing.

Source: The Independent, Daily Mail, Daily Mail, Daily Mail

Luxury homes are performing surprisingly well

House prices are stagnating at the moment, but the declines aren’t spread evenly. Luxury homes in London are holding steady when compared to other, perhaps more “affordable” types of property.

Prices in London’s core luxury neighbourhoods slipped 0.9% in July compared to the year prior, according to Knight Frank. But, between July 2022 and July 2023, the average price of flats/maisonettes fell by 1.8% in comparison, according to the ONS.

Also, high-end sales performed well. Deals rose by 13% over the five-year average in July. By comparison, overall UK home sales dropped 5% over their five-year average, according to Knight Frank.

Some wealthy renters appear more than happy to fork out for their luxury homes. Some are paying up to £40,000 per week for their little slice of luxury. This isn’t a new phenomenon either.

In an interview with the Evening Standard, Trevor Abrahmsohn, managing director of Glentree International, a luxury North London estate agency, noted it was only around 15 years ago when £10,000 a week was the highest level renters were willing to go. Across the industry, these wealthy renters are referred to as “uber tenants”.

Even now, with interest rates and inflation sitting where they are, there is no shortage of interest in luxury homes. In mid-July, the “most luxurious home to rent in Britain” made headlines for costing around £173,000 a month. Yet, despite the costs, the property has now been removed from Rightmove’s site by the agent.

Monied buyers and renters alike are keeping demand high for luxury homes. But what is it they’re after, and where are they looking?

Source: Mansion Global, Evening Standard, Daily Mail, Rightmove, ONS

What you can focus on

London’s prime market is what many investors and renters are focused on, unsurprisingly. Demand for prime London property from buyers and renters jumped by nearly 60% last year, according to Foxtons. Meanwhile, new instructions in London’s prime market rose by 6.5% in August compared to a year earlier.

But, if you’re exploring your options, you may not have to stick with London’s luxury homes. West Sussex and Hampshire saw among the biggest increases in rental demand in Q3, according to Barrows and Forrester. These areas, with their coastlines and picturesque villages, could have plenty of high-end options for those targeting wealthier renters.

The average house price in West Sussex was £455,080 over the last year, according to Rightmove.  In Hampshire, the average price sat at just over £419,007. For comparison, the latest ONS House Price Index found that the average UK house price was £290,000 in July 2023.

Outside of regional targeting, you could also focus on what features of housing are driving demand. For renters, double glazing, smart technology, and being near a station are considered the most important features of a home, according to a Rightmove study.

It may also be worth exploring seasonal shifts in demand. As we begin to look back on the summer, it’s becoming clear that London’s super-prime options can tempt the ultra-wealthy looking for short-term stays.

And what is it that these prime summer renters want from a property? Access to London’s most luxurious streets, air conditioning, added security, immaculate internal décor, etc.

It needs to be remembered though; MFS is not a financial advisor. We cannot offer you guidance on how, or what to invest in. The examples given are just to give you an idea of what may be available in the current market. You will need to work with a qualified advisor, wealth planner, and/or other expert(s) to see what’s right for your circumstances.

Source: The Negotiator, Letting Agent Today, Property Reporter, Rightmove, Rightmove, Rightmove, Rightmove, Evening Standard, ONS

The specialist finance options available

Once you’ve settled on a luxury home you’re happy with though, we may be able to help with the funding side of things. At MFS, we have large bridging loans at the ready for those bigger projects and opportunities.

This obviously includes luxury homes, but the finance can also be used for large commercial spaces, major portfolio investments, and more. Both 1^st and 2^nd charge funding of up to £50m is available.

What’s more, we also have specialist BTL mortgages available for landlords making substantial purchases. These can be up to £10m for portfolio and professional landlords.

Also, if you want to upgrade your existing assets, taking them from nice houses to luxury homes, we have permitted & light development bridging loans available. These can stretch to £20m and can cover refurbishment, renovation, and conversion projects.

If you want to know more about the options available to you, why not give us a call? You’ll be assigned a dedicated underwriter from day 1 who will be able to answer any questions you may have.