Residential rents in London set to fall by 3% in 2017

llAverage rents in London set to fall by 2% to 3% in 2017 while those in the rest of England and Wales are predicted to rise by 2% to 3%. London has recorded higher levels of rental growth since 2010 averaging 4.5% per annum with periods of weaker inflation in 2013 and now in 2017. Strong employment growth in London over this time, two to three times faster than other regions, has increased rental demand. The residential rental growth over the last decade has ranged from 45% to -7% across regions and the variance is largely explained by local economic factors and rents have tracked earnings over the long run.

According to the report from Hometrack, Rental growth is expected to be best in the Midlands and East of England where rents are currently increasing at close to 5% per annum. High house prices and tighter mortgage regulation have made it harder for first time buyers to transition from renting to buying, further sustaining demand for rented housing. It is not surprising that rental growth in London has slowed to 0.4%. Outside London rental growth is running at 3.1%. Looking ahead, there is likely to be a tightening in rental supply in the next 12 months to support rent levels, primarily in London. Higher levels of stamp duty and changes to tax relief for landlords have reduced new purchases, with buy to let borrowing down 30% on 2015 levels. In contrast, it predicts that rental growth outside London will continue to track earnings growth.

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