London Rent Growth Slows to Three-Year Low

London’s rental prices are rising at the slowest pace since 2021, offering some relief to tenants in the UK capital, Bloomberg reports, citing data from Rightmove. The balance between supply and demand has started to improve.

In Q4 2024, the average advertised rent in London increased by just 0.1%, reaching £2,695 ($3,362) per month. This marks an annual rise of 2.4%, the slowest growth rate since 2021. Meanwhile, rental prices outside London declined for the first time since 2019. While rental costs remain significantly higher than in 2023, a 0.2% drop is seen as a key milestone, signaling that the runaway inflation of recent years may be easing.

Cooling Rental Market in London

According to Alex Bloxham, partner and head of residential lettings at Bidwells, the rental market is showing clear signs of cooling. Over the past year, tenants faced fierce competition and persistent rent inflation, but now, landlords continue to invest in their portfolios, while many tenants prefer to stay in their current homes.

“This is likely due to ongoing macroeconomic uncertainty and the initial costs associated with moving,” Bloxham said.

Additionally, many landlords are opting to sell properties due to high mortgage costs and potential policy changes proposed by the Labour Party, such as:
- Banning no-fault evictions.
- Stricter environmental regulations for rental properties.
- London Rents 30% Higher Than Pre-Pandemic Levels

Rightmove data shows that rental prices in London are almost one-third higher than before the pandemic, with an average increase of £630 ($788) per month.

Official data that accounts for the total rental housing stock showed that rental prices rose by 9% in 2024. Rising housing costs are diverting disposable income, which could undermine Labour’s plans to boost economic growth.

However, Colleen Babcock, a property expert at Rightmove, noted that supply and demand dynamics have improved in recent months.

Build-to-Rent Sector Expanding

Large institutional landlords investing in build-to-rent properties are helping to ease the supply shortage, leading to a 13% annual increase in available rental units.

Some rental properties are being freed up as tenants shift to homeownership, driven by:
- Falling interest rates.
- Rising real wages.
- Households Worry About Labour Market and Rising Costs

At the same time, British households are increasingly concerned about potential job cuts, following Labour’s decision to raise employment costs in the budget. The cost of living remains high, with:
- Rising electricity tariffs.
- The return of food inflation.

Despite these concerns, analysts highlight that the market remains significantly more competitive than before the pandemic. On average, there are 10 rental applications per available property, almost double the pre-COVID norm.

Declining Mortgage Approvals and Slowing Housing Market

Recent reports indicate that mortgage approvals in the UK have dropped sharply. In November 2024, approvals fell to their lowest level since August, dropping from 68,129 to 65,920 in a month. Analysts attribute this to higher interest rates following Labour’s new budget announcement.

Property Sellers Face Lowest Profits in Nine Years

Sellers in the UK recorded the lowest profits in nine years, with the average gross profit on home sales in England and Wales in 2024 at £91,820 ($112,929), or 42% – an 11% drop compared to the previous year, according to Hamptons International.

In 2024, only 25% of London home sellers bought and sold within five years, compared to 34% nationwide. The average profit for London sellers was £172,350, about £32,000 lower than in 2023. For the first time in nine years, profits in the capital fell below £200,000.

Construction Activity Declines

In December 2024, the UK housing construction PMI fell for the sixth consecutive month, suggesting that new housing supply could slow. Hamptons’ November report noted that this trend could drive up home prices.

Analysts forecast that:
- UK house prices will rise by 3% in 2025.
- Further growth of 3.5% is expected in 2026.

Real Estate Outlook for 2025

While Nationwide acknowledges negative factors affecting the property sector, it remains relatively resilient. The UK market is expected to improve in 2025, supported by:
- Falling interest rates.
- General economic growth.

However, a potential decline in property transactions is expected in April, following planned tax increases.