Prime London’s rental growth has started to slow on an annual basis, according to the latest Savills prime lettings index.

But the agency warns that a lack of stock continues to drive up rents, particularly across the South West and West parts of Prime London, and amongst smaller properties.

Rents grew by 1.4 per cent in the second quarter – echoing growth in the first quarter, too – and rents are up by 6.7 per cent during the past year, leaving them 15.9 per cent higher than in March 2020.

South West London hotspots – Wandsworth (up 6.6 per cent), Clapham (up 5.1 per cent) and Battersea (up 4.1 per cent) – significantly outperformed, the agency says. 

“Early signs that price growth is started to slow will come as welcome news to renters who have seen prices rocket since pandemic restrictions began to ease. Tenants in some locations are certainly still willing and able to pay a premium to secure a property, but stock is not as scarce as it was this this time last year, and only the highest quality homes can now expect multiple bids” comments Jessica Tomlinson, research analyst at Savills.

“The majority of Savills London agents (70 per cent) saw stock levels increase over the past three months which points to further slowing of growth, but there are still markets which remain chronically undersupplied. This correlates strongly with locations that are still experiencing very high levels of rental value growth.”

“Levels of debt exposure amongst mortgaged buy to let landlords will play a critical role in the future shape of the private rented sector. Prime rental markets, which tend to be dominated by cash investors, are likely to be less exposed and, at the same time, tenants’ budgets are less constrained.

“But, even in the less price sensitive prime market, rising rents will hit up against an affordability ceiling in the coming months and that will begin to constrain rental growth” concludes Tomlinson.

According to Savills, three-quarters of agents agree that landlords’ expectations on rental values increased over the past three months versus only half of tenants, while just over a third of tenants expect rents to have decreased over the past three months.