How has prime central London fared in 2017?
While 2017 has been a successful year, there have been many challenges and changes in the rental market.
Average rental values in prime central London dipped 0.1% in the three months to September, which was the smallest quarterly decline in almost two years. Average rents were down 3% year-on-year, the most modest decline since June 2016, underlining how a slowdown in new lettings stock coming onto the market is putting upwards pressure on rental values. The number of properties coming onto the market between January and August was up just 2.2% year-on-year, compared to an equivalent jump of 33% between 2015 and 2016.
Higher supply was the result of slower activity and pricing uncertainty in the sales market following a succession of tax hikes, which meant more owners decided to let rather than sell. However, this trend has started to reverse as asking prices adjust and demand improves. While the availability of lettings properties has become more muted, demand is rising, which is also boosting rental values.
The number of new prospective tenants registering in the first eight months of this year increased 19.6% and viewing levels were 25% higher than last year. Furthermore, the number of tenancies agreed in the first eight months of the year was 19% higher than 2016. The imbalance between new levels of supply and demand suggests the market balance is likely to tip back in the favour of landlords after a period when tenants have benefitted from higher supply levels and falling rental values.
There is no sign that recent tax changes for landlords have exacerbated the trend for declining levels of new stock in any material way by prompting landlords to sell. Recent tax changes include the reduction of tax relief on mortgage interest, the loss of the wear-and-tear allowance and a 3% stamp duty levy for buy-to let investors. While there are fewer buy-to-let mortgages issued in the UK than before a 3% stamp duty was introduced in April 2016. Knight Frank data shows there was a 9.8% rise in the number of landlords who re-let their property in prime central London in the year to August 2017,underlining the fact there has been no large scale exit from the buy-to-let sector.