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London rent increases slow down

The Negotiator

Rent increases in London are rising more slowly than anywhere else in the country except the East Midlands, the latest data from the HomeLet Rental Index reveals. Renters in the capital signing up for new tenancies during November agreed to pay rents 1.6 per cent higher than a year ago – half the 3.1 per cent increase in annual rental inflation seen across the UK last month.

The pace of inflation in the London market has slowed significantly, following an extended period when rent rises in the capital ran ahead of the rest of the UK. Last November, rents in London were rising at a rate of 7.7 per cent, and inflation in the capital consistently ran at around 6 per cent during the first half of the year.

By contrast, November was the second successive month in which London rental increases failed to keep pace with the rest of the country, even though inflation elsewhere is slowing too. During the first half of this year, UK-wide rents rose by an average of 4 per cent or more in five out of six months, but the pace has slipped back.

HomeLet’s data has suggested that landlords have become more cautious about the rental increases they seek.

That may reflect concern about affordability in a market where inflation has consistently outpaced both price and earnings inflation in recent times – particularly given the uncertainties about the UK’s economic outlook.

This year has also seen an unprecedented level of Government intervention in the PRS, with long-term effects on landlords. In particular, the 3 per cent stamp duty surcharge on buy-to-let purchases and second homes and the proposals to ban letting agents’ charging tenants fees. Many landlords are also affected by cuts to mortgage interest tax relief, due to be phased in from April 2017.

Nevertheless, the medium to long term outlook for the PRS remains one of demand outstripping supply, with house price affordability stretched and limited progress on new construction. It will therefore be crucial to support landlords in their crucial role in the UK housing market.

HomeLet graph image

February 17, 2017

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