Prime London lettings boom amid tax uncertainty

London’s prime lettings market is experiencing an upswing, driven by tax uncertainty and shifting investor behaviour, according to Knight Frank’s latest findings.

While the number of tenancies started in prime central London above £1,000 per week rose by 7% in the year to May, sales of properties above £2 million saw a 4% decline over the same period.

This divergence highlights a growing preference for renting over buying in the capital’s high-end property market, the firm says.

In areas like Notting Hill and Kensington, previously robust sales markets are now seeing properties shift to lettings.

The firm also says that the scrapping of non-domiciled tax rules in April has prompted some to explore options abroad.

Prime rents weaken

Tom Bill, head of UK residential research at Knight Frank, said: “Pricing has softened as more high-quality stock comes to the market.

“More owners are looking at their options overseas and renting out their property in the meantime.”

This shift has boosted lettings demand, particularly in the super-prime segment, where tenancies above £5,000 per week in PCL surged by 15% in the year to May.

The introduction of new legislation, such as the Renters Rights Bill, and a recent increase in stamp duty for second homes from 3% to 5%, have dampened landlord confidence and reduced supply in lower price brackets.

Average prime London house price

However, London’s prime sales market is facing challenges, with average property prices in central London falling 2.2% annually, marking the steepest drop since August last year.

A quarterly decline of 1.4% was the largest in nearly five years, while new buyer registrations dropped by 13% in the six months to May.

Meanwhile, prime outer London saw a modest 1.1% rise in average prices, supported by needs-based domestic demand.

Prime rents rise

Knight Frank also says that rent prices are also trending upwards, with prime central London rents rising 0.9% annually, driven primarily by the higher-value market.

Rents between £500 and £1,500 per week grew by 0.3%, while those above £1,500 per week climbed 1.9%.

In prime outer London, average rents increased by 1.7%, with the super-prime segment again leading the charge at 1.3% growth for rents above £1,500 per week.

The broader London market reflects a 4% decline in tenancies across all price ranges, largely due to shrinking supply.