More lettings stock, Brexit and stamp duty have had an impact on London rental market

An increase in residential lettings stock in London due to Brexit and stamp duty is having a downward pressure on rents, according to the latest analysis report.

A return to rental growth, last seen in March 2016, is unlikely as tenants have adjusted to the current lower levels and more choice means they can afford to shop around and bargain when it comes to rental prices.

The London Lettings Report covering the fourth quarter of 2016 from agents Foxtons, also points out that further changes in the market sector such as tax rules for buy to let landlords and the Government’s Housing White Paper will have an impact.

‘As these changes are brought in, success is likely to be increasingly defined by the ability of landlords to retain their tenants for longer and provide them with a higher level of service. In the meantime, astute investors continue to benefit from strong gross yields and capital appreciation over the longer term. This is unlikely to change any time soon,’ the report says.

It explains that the number of properties being offered to rent continued to increase in the final quarter of 2016. Over the course of the year investors who bought before stamp duty changes offered properties to the market while would-be vendors chose to let properties and sell at a later date.

It also points out that despite rising stock levels, an increase in demand at the very end of the year compared to previous years meant that the ratio of renters per available property ended 2016 on a par with previous years.

However, rising rental stock put some downward pressure on rents over the course of 2016. Small flats in Zones 1 and 2 were least affected while larger flats in the most central areas saw the greatest falls.

The premium paid for furnished flats widened further in the fourth quarter although the greatest difference remains in Zone 1 while total annual returns for flats in London averaged 13.3%, down slightly from 14.2% in the third quarter. Foxtons says that this was largely a result of a slowdown in the rate of capital growth.

Overall, property across London continues to offer strong returns on investment, according to the report which says this is despite some falls in rents and a slowdown in capital value growth. Returns for flats are highest in outer parts of London in Zones 3 to 6 while for houses, Zone 2 is currently offering the highest returns.