Paradise is a parking place in central London

For home owners and landlords inside and just outside the zone, the congestion charge is a chance to make money. Melanie Bien reports

In just over a week, people driving within the congestion zone in central London will be charged £5 a day for the privilege. But while motorists prepare to part with their cash, some home owners inside and just outside the eight square mile zone are looking forward to making money.

Estate agents say the congestion charge has been having an impact on buying patterns in the capital for some time. An increasing number of home buyers and buy-to-let landlords are interested only in properties within the zone. This hasn't affected prices yet but they are expected to rise in central London once the levy is introduced.

"Congestion charging is putting parking higher than ever on buyers' list of priorities, and parking space is now a very valuable commodity in certain key areas where demand is already outstripping supply," says Stephen Ludlow, director of the residential property agency ludlowthompson.com. "We expect to see more buyers specifying properties with spaces either for their own cars or to maximise rental income, and vendors are already using this as a selling point."

Car owners who live within the zone get a 90 per cent discount on the congestion charge. This means a parking space could be worth as much as £1,170 per year to a tenant with a car.

Buy-to-let landlords renegotiating leases with tenants inside the zone could therefore find they have a compelling bargaining tool. And yields, the figure to bear in mind when calculating whether you can make a profit from buy to let, can also improve for properties that qualify for a resident's discount. For example, the yield on a £250,000 property in SE1 rented out at £300 a week could rise from 6.2 to 6.7 per cent once the full value of the discount is added.

But Mr Ludlow says that landlords looking for properties to rent out in the zone should be wary. He warns that tenants tend to be younger than purchasers so there's a chance they won't own a car and therefore won't be interested in paying over the odds for a home with parking. Meanwhile, the sub-letting of parking spaces may be prohibited under the terms of some leases.

The aim of the congestion charge is to reduce traffic in the centre of the capital, so those living within the zone could well benefit from shorter journey times. Even though it is questionable whether the 15 per cent fall predicted by Transport for London will become a reality, the Centre for Economic and Business Research (CEBR) predicts that less traffic will lead to a rise in rental values. "Clearly, in central London, even small percentage changes in values would translate into very large sums of money given the property involved," says David Hutchings of Healey & Baker, the property consultants for whom the CEBR carried out the research.

There are fears that traffic congestion and pollution may increase in the residential roads outside the zone as motorists try to avoid the charge. It has also been predicted that property prices in these areas may be affected. But at least those roads where residents' parking permits apply should not end up jammed with commuters' cars.

In fact, properties with allocated spaces outside the congestion zone stand to benefit. This is particularly true of areas with the E1 postcode, in Whitechapel and Stepney, which are convenient for City commuters. The value of spaces further down the Tube lines should also do well as long-distance commuters park on the outskirts and use public transport to avoid the charge.

Property owners who rent off-road spaces just outside the congestion zone can expect relatively high returns. In E1, for example, a successfully let parking place can generate around 13 per cent of the rental income of a one-bedroom flat let for £250 a week (see table).

If you have a parking space, hang on to it, as demand for spaces in and around the congestion zone is likely to be high because of planning restrictions and increased parking fines.

"Parking spaces within easy reach of central London are becoming more and more difficult to come by as the pipeline has been all but turned off by planning policy," adds Mr Ludlow. "We are also finding that some parking spaces are leaking out of the market as some former garages are being used for small residential developments. Individuals are also converting garage spaces within houses into studies or playrooms."

Rental income from off-road spaces

Area (in relation to Income charging zone) per year

Inside: West End W1 £2,800

Just outside: Whitechapel E1 £1,750

Further outside: Putney SW15 £1,350

Further outside: Lewisham SE13 £800

Source: ludlowthompson.com