Rental growth is forecast to exceed house price growth in London, despite a glut of properties on the lettings market in London after investors scrambled to buy before the three per cent stamp duty surcharge on additional homes came in April last year.
However, Savills says asking rents in the capital fell 3.2 per cent in the year to June 2017, compared to a 1.9 per cent rise on average across England and Wales.
The agency says rents in the capital have now stabilised. Compound growth of 17 per cent is projected from 2018 to 2022, in line with wage growth but ahead of inflation.
But it warns that the withdrawal of mortgage interest tax relief will push investors from London to higher yielding regional locations over time.
Increased rental supply there will dampen potential rental growth beyond the capital.
“The rental outlook is strongest in regional cities that attract employees from high value sectors such as professional services, technology, and finance,” says Savills.