Rents in the prime central London property market increased by 1.1% the 12 months to September as supply levels continue to fall, a new index report shows.
There has been a 7% fall in the number of new lettings listings in the sector over the same period, according to the report from real estate firm Knight Frank which also reports a 6% increase in the number of new tenancies agreed.
While uncertainty surrounding Brexit is having a discernible impact on the sales market, the lettings market has been more affected by fiscal than political events, according to the report.
‘A succession of tax changes for landlords that continue to 2020 means an increasing number have either sold or listed their property for sale. This, in turn, has resulted in a decline in supply and put upwards pressure on rental values,’ said Tom Bill, head of residential London research at Knight Frank.
The report also says that in the prime outer London marker the supply of homes to let has fallen by 10% over the same 12 month period while the annual decline in rents in prime outer London is moderating, down just 1%, the smallest for two and a half years.
Bill said that reform to tenant fees is one recent change that may exacerbate this trend. ‘The change, which is likely to be introduced next year, could prompt more landlords to review their portfolios amid increased administrative charges,’ he explained.
‘Other tax changes in recent years relate to mortgage interest relief, wear and tear allowances and stamp duty. Meanwhile, there was an announcement in the Budget that landlords who have previously lived in the property being rented out will no longer benefit from capital gains tax relief, which will impact owners who have become landlords after being unable to sell,’ Bill said.
‘As a result, landlords have a growing list of considerations when managing their portfolio. The proposal by a Conservative think tank to scrap capital gains tax for landlords who sell to tenants who have lived in the property for three years is another example of this. Though some landlords have attempted to sell in recent months in response to recent tax changes, a number of them have returned to the lettings market after their pricing expectations were not met,’ he pointed out.
The research also shows that the total annual return in prime central London, a figure that takes the gross initial yield and annual capital value growth into account, was 0.3% in September. While this is lower than some previous years, it is stronger than other asset classes.
