Prime London rents rose in the year to September as landlords absorbed a wave of extra costs and tenants competed for fewer homes, according to the latest lettings data from property consultancy Knight Frank.
Tom Bill, head of UK residential research at Knight Frank, said the London rental market is already showing the effects of higher taxation and red tape, less than a month before the Budget. Landlords have faced added financial pressure this year, including the Renters' Rights Act, which came into force in May.
The legislation sets stricter rules on collecting and increasing rent, reforms the possession process and adds safeguards to stop properties being re-let after landlords recover them for sale.
Borrowing costs have climbed too. Bank of England data shows an average five-year fixed-rate buy-to-let mortgage at 75% loan-to-value cost 4.7% in August, compared with 3.88% in January. Pre-Budget speculation about capital gains tax increases and National Insurance on rental income adds to the strain, prompting some landlords to recheck their sums.
Prime London rents rise as supply falls
A shrinking supply of lettings properties is pushing prime London rents higher. Average rents in prime outer London (POL) increased 3% in the year to September, including a 2.3% rise over the past six months. That is the fastest half-year pace since January 2024, when the lettings market was still recovering from the supply and demand imbalance caused by the pandemic.
Landlords have also set higher asking rents since May to reflect the greater risks they face under the new rules. The change has fed through to prime London rents, a result Bill described as unintended but predictable. Meanwhile, new listings in POL fell 6.4% in the year to August compared with the previous 12 months.
Supply has been less of a constraint in prime central London (PCL), where weakness in the sales market has led more discretionary owners to let out their properties. Even so, average rental values there rose 1.3% in the year to September. After falling at the start of that period, they have gained 1.8% over the last six months, also the fastest half-year pace since January 2024.
The ratio of new prospective tenants to new properties in POL stood at 8.9 in the three months to September. That is higher than during the pandemic, when demand snapped back quickly after successive lockdowns. In PCL, the ratio was 5.6, the highest in four years.
