London rents easing

The latest rental index from Knight Frank brings some relief to renters in prime areas of London, indicating a slowdown in rent increases not seen since the summer of 2021. While average rents are still rising, the growth has narrowed, with prime central London seeing a 4.9% increase and prime outer London witnessing a 4.4% rise in the year to April.

This slowdown in growth is attributed to rising supply, fueled by landlords looking to sell properties. The active sales market during the pandemic, boosted by the stamp duty holiday, led to a decrease in lettings stock as owners took advantage of favourable market conditions. Additionally, landlords leaving the sector due to regulatory burdens and tax implications have contributed to the trend.

Tom Bill, head of UK residential research at Knight Frank, notes that tenants are gaining more leverage as a result of this shift in dynamics. They are increasingly pushing back against large rent increases, renegotiating terms, or seeking alternative options at the end of their tenancy.

However, the Renters (Reform) Bill and proposed changes to the private rental sector by political parties are adding uncertainty to the market. With the possibility of expanded reforms under a new government, more landlords are considering selling their properties, as indicated by early signs ahead of the general election.

While new lettings instructions have seen a slight decrease compared to the previous year, sales instructions have increased, albeit with flat or falling prices. Properties that fail to achieve desired sale prices may return to the lettings market, contributing to overall lettings supply growth.

Despite these fluctuations, gross average yields have risen, reaching 4.24% in prime central London, the highest since March 2007, as rents continue to climb while sales values decline.

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