Foxtons: London rents continue to rise but there are signs of a slowdown

The London lettings agent has recorded a dip in demand, which could push down rental returns for buy-to-let investors

To let signs
(Image credit: Getty Images)

London is holding onto its crown as the most expensive part of the UK to rent but there are signs of a slowdown, which could hit the profits of buy-to-let investors.

Tenant demand has continued to exceed rental supply for much of this year as high mortgage rates deter many from buying and giving a boost to landlords.

Demand remains high in London and new figures from lettings agent Foxtons shows average rents have increased 8% annually as of November 2023 to £582 per month.

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Foxtons found that studios have shown the largest annual rent increase, up 11% year on year.

East London stood out with an 11% year-on-year increase, surpassing all other areas in London in growth of rent achieved, Foxtons said.

This may make buy-to-let investors consider whether now is the time to enter the property market or add to their portfolio.

But there are downsides. Many landlords have been exiting the sector due to tax restrictions plus there are new rules being introduced that would eventually ban no-fault evictions and let tenants challenge rent increases.

There are also signs that rents may have peaked, limiting how much buy-to-let investors can earn.

Property website Zoopla this week warned that rental growth will halve next year as tenants hit the limits of affordability.

What is happening in the rental market?

There are already signs of a slowdown in the rental market.

Foxtons’ latest data also shows average rents fell 3% on a monthly basis while there has been a 12% annual decline in rental demand – calculated based on renter registrations - during 2023.

Rental supply is also rising, while demand falls, which could also push rents down.

Foxtons’ analysis of Zoopla data revealed that London experienced a 13% increase in new instructions compared with November 2022.

However, there was a 4% decline compared with October 2023. 

Westminster saw the highest increase in new market listings year to date, with a share of 12%.

The ratio of new renters to new instructions stood at 12 renters per instruction in November, 9% down on October. 

Meanwhile, south London had the highest number of renters per instruction with a year-to-date average of 25. On a month-on-month basis, South London saw a 10% increase, rising from 15 to 17.

Will rents rise or fall in 2024?

The buy-to-let market has boomed in recent years as rising house prices and high mortgage rates have stopped many renters from stepping onto the property ladder.

The high levels of demand as well as a lack of rental supply as many landlords have left or reduced their portfolios amid tax and regulatory clampdowns, has also push up rents.

But house price growth is now slowing and mortgage rates are falling, making buying a more viable option, plus there are limits to how much tenants can afford to pay for rent. 

Zoopla is predicting that annual UK rental growth will halve to 5% by December 2024.

It forecasts that London will have annual rental growth of 2% next year - the lowest level since 2021.

Estate agency brand Savills has predicted that rents will rise by 9.5% by the end of this year and forecasts that a continued imbalance between supply and demand in 2024 will keep rents 6% higher.

But it warns an “affordability ceiling” will limit growth between 2025 and 2028.

Foxtons is also expecting a calmer rental market.

 “If the trends we saw this year continue, especially those from the latter half of 2023, I expect we will see much more consistent pricing with a gradual increase and decrease on either side of the third quarter and more stability in available stock,” says Gareth Atkins, managing director of lettings at Foxtons.

Marc Shoffman
Contributing editor

Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.