New data from Zoopla shows that a two-speed rental market is operating across the UK, with London in particular hitting major problems.

It says rents in the capital have fallen three per cent since the start of the year and are down by 1.4 per cent when measured over the last 12 months.

This is the second time rents have fallen into negative territory in the last three years in the capital – rents fell in March 2017 on the back of rising supply after the introduction of the additional homes stamp duty surcharge the previous year. 

Inner London has seen the greatest downward pressure on rents as the working-from-home policy and reduced international travel and tourism impact the pool of demand for rented property.

Meanwhile availability of rental stock in London has increased significantly, mainly thanks to the near-collapse of the short lets market.

Zoopla’s latest market snapshot shows other problems, too.

In Edinburgh, where annual rental growth has slowed to just 0.2 per cent – down from four per cent a year ago – the rise in supply has also been exacerbated from the movement into the mainstream rental market by landlords who had been operating their properties as short lets.

The uncertain outlook for international tourism, as well as new legislation that may  limit the types of homes that can be used for short lets in the Scottish capital, is likely to have created a one-off shift in properties to mainstream rental.

Meanwhile across the UK as a whole, the portal says average rents dipped by 0.3 per cent in June and by 0.8 per cent in the full second quarter. 

Zoopla predicts that annual rental growth in the UK outside London will slow from its current 2.2 per cent to just around 1.0 per cent by the end of the year, with an annual decline in London of as much as five per cent by the end of 2020.

Gráinne Gilmore, the portal company’s head of research, says: “The future path of annual rental growth will be determined largely by the economic outlook, especially the rise in unemployment and the future path of average earnings. 

“However, as new rental supply continues to catch up with demand levels, we could see further softening of headline rental growth by the end of the year, although there will be some areas of outperformance.

“Uncertainty continues over how any further outbreaks of COVID will impact the resumption of office life, student life and tourism, and this uncertainty will impact demand in some markets during the rest of the year.”