_KF Insight: Prime central London lettings market begins to tip in favour of landlords

There is evidence that landlords are set to gain more of an upper hand in the prime central London lettings market, as Juliet Hill tells Tom Bill.

Tom Bill July 18, 2018

The balance of power in the prime central London (PCL) lettings market has started to tip back in favour of landlords, according to Juliet Hill, a London regional lettings head at Knight Frank.

High supply levels in recent years mean tenants have had the upper hand in rent negotiations and rental values have fallen on an annual basis.

However, the trend is reversing following recent tax changes and Juliet believes this will bolster the position of landlords.

“There is less stock coming through which leads me to believe the tanker could be turning and we are slowly returning to more of a landlord’s market,” she said.

^{Above: Juliet Hill, a London regional lettings head at Knight Frank.}

Housing affordability remains a live political issue in the UK and changes affecting landlords 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.

As more landlords explore a sale, rental values have strengthened and annual rental value growth was 0.8% in PCL in June, the first positive figure since January 2016. The fact sales pricing appears to be bottoming out may have also encouraged some landlords to act.

Meanwhile, 4% more new prospective tenants registered in PCL in the year to June 2018 than the previous 12 months. As a result, the number of new prospective tenants to every new rental listing was 4.9 in June, the highest ratio in more than ten years, Knight Frank data shows.

“Any change won’t happen quickly as it is only a trickle of landlords leaving the PCL lettings market at the moment,” said Juliet. “There are obvious longer-term benefits of holding central London property. However, there is sense of frustration with recent tax changes and the latest plan for three-year minimum tenancies is another example of legislation that may have unintended consequences on supply and demand dynamics.

“Imagine an owner relocates somewhere for two years and wants to let out their property while they are away? They wouldn’t have anywhere to come back to after the end of two years.”