Monthly decline in average rents in prime central London lettings market halts

Average rental values across the prime central London letting market were unchanged in July, ending a pattern of monthly declines that began in October 2015.

The figures from the Knight Frank central London lettings index also show that annual rental growth has improved slightly to -3.7%, which was the first time in a year that it has exceeded -4%.

A decline of 0.4% in the three months to July was also the lowest three month decline since October 2015.

The index report points out that rental values in the sector have fallen since the end of 2015 as a result of higher levels of stock, which means the market has been tipped in the favour of tenants.

‘More property came onto the lettings market as a result of uncertainty over the short term trajectory of price growth in the sales market following successive tax hikes. Tax changes affecting landlords appear to be one reason the market balance appears to be tipping back the other way,’ said Tom Bill, head of residential research at Knight Frank.

He pointed out that curbs on mortgage tax relief and a 3% stamp duty surcharge are among the reasons some landlords have reassessed their property portfolios and UK Finance has revised down its forecast for buy to let lending in 2018 by 13% to £33 billion from £38 billion.

According to Bill, the other factor that will further tighten supply in the prime central London lettings market is that the sales market is assimilating stamp duty changes. ‘Prices are likely to be flat this year after a 6.3% price decline in 2016 and transaction volumes are rising,’ he said.

‘Accordingly, there was a 6.4% decline in the number of new lettings properties on the market in prime central London in the first six months of 2017 compared to last year,’ he added.

The index also shows that demand indicators are rising, again supporting rental values. The number of tenancies agreed in the first six months of the year was 28.2% higher than 2016, while the number of new prospective tenants registering with Knight Frank rose 14.7% and the number of viewings was up by 23.1%.