End of year sees rent increases gradual but steady

The main issue in London’s rental market is whether affordability has peaked. Rightmove’s latest rental price tracker reports that average advertised rents have hit a record £2,736 per month, up 1.6% despite a 9% rise in available housing on the portal. Still, tenants in the Capital spend about 44% of their wages on rent, even as earnings climb by 5%. With inflation possibly reaching the Bank of England’s preferred 2% target by late 2027; more global businesses expanding their activities in the UK, and several billion pounds committed to artificial intelligence and infrastructure, an affordability crisis may well be avoided.

More housing stock creates more choice

With borrowing rates stabilising and yields improving, landlords are seeking investment opportunities in London again. Take-up for buy-to-let mortgages from young domestic investors rose by 60% early this year, supporting the growth in rental supply. Simultaneously, a record number of homes were listed for sale in 2025, but many did not sell and were quickly rented out, bringing rents to seasonal levels.

Cautious optimism is rebounding, and seasoned landlords recognise that the laws of supply and demand can play to their advantage, even in the face of more regulation. A recent poll by Landbay recorded twice as many landlords (36%) are feeling more positive about their investments than they were before the Autumn 2025 budget. They are also aware that due diligence in finding the right tenant pays off as evidenced by the latest UK Government’s English Housing Survey which was released in July 2025. The survey reveals that in 2023-24, 95% of private rented households said they had not been in rent arrears over the 12-month period. This compares to 2019-20 where the percentage of private renters that had not reported arrears, was 92%.

More pragmatism now

Contrary to some sources, the Renters Rights Act which became law on the 27 October 2025 has not triggered a mass sell-off. The number of UK landlords has actually been declining since 2017 with multiple factors including a whole raft of experienced investors who are now retiring and looking to consolidate their wealth.

Earlier in the year, speculation about stamp duty hikes and tax changes led some overseas investors to delay long-term commitments. Now, with greater certainty following the UK budget, the way is clear for them to return to their favourite market. Some industry commentators are forecasting rents to rise steadily by around 12% over the next five years, a trend that experienced investors can readily factor into their long-term plans.

Prime Central London has continued to ease out of the pandemic-induced slump and Prime outer London areas are following suit. Rental growth is holding firm at 1.9% and 2.0% respectively. Average yields of 4.5 per cent make this even more encouraging reading as these are the highest averages since 2006.

Landlords tighten up on their paperwork

Licensing has become a key topic of late. This was due to a series of ethical blunders involving the private properties of Government ministers who were responsible for regulating the housing market. More than anything else these scandals have highlighted the importance of landlords at all levels needing to familiarise themselves with their legal obligations. Licensing and certification may seem tedious, but they are non-optional requirements which an experienced letting agent should be able to provide guidance on.

It seems that the Government’s 2% council tax surcharge on homes valued at over £2 Million may have taken the spotlight away from the Renter’s Right Act. Both pieces of legislation affect landlords but in different ways and to different degrees. The tax surcharge will not take effect until 2028 and will take the form of annual payments. Similar high value property surcharges exist in France, some US states, Norway and Turkey – as such, the new measure should not put London at a disadvantage when compared to other solid property investment locations.

The Renter’s Right Act becomes law

Obviously, a final word should be said about the Renter’s Rights Act, which has cast a disproportionate shadow over the rental market this year. Even setting aside the phased rollout, due to take effect from May 2026, it is worth acknowledging the problems the legislation is designed to tackle. If the law succeeds in fostering greater fairness and transparency, and in removing some of the grey areas around tenant and landlord accountability, that can only be a positive step.

If you are reading this wondering what more is in store for investors next year, please get in touch with our London teams or our international offices who will be happy to assist you.