Looking forward, the strengthening London economy and the continued expansion of sectors such as technology and telecommunications will underpin demand for prime rental property both in London and the wider commuter zone, though demand from the financial and business services sector is forecast to remain relatively subdued.

On the supply side, a more muted sales market in the run up to the election could result in more would-be sellers bringing stock to the rental market. In the short term this is likely to continue to suppress rental growth. In addition, in certain locations on the fringes of prime London, where high levels of new build stock have been bought by overseas investors, we expect rents to come under pressure over a longer period.

Nonetheless, across the prime London markets as a whole we expect rents to rise by 17% over the course of the next five years, unless a mansion tax were to be introduced and levied on the occupier of £2m+ homes.

Beyond London we expect the preference for prime family housing in key commuter towns to continue, with existing demand supplemented by that from those relocating to these areas and temporarily renting before buying. On the supply side, we believe a stronger sales market is also likely to reduce the impact of the accidental landlord over the medium term, causing a reduction in available rental stock at the top end of the market and supporting rental growth.

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Impact of the Autumn statement

• The Autumn Statement heralded a significant reform of the stamp duty system, which may impact on future investor behaviour. Stamp duty costs will be lower for all acquisitions below £937,500. However, across Kensington and Chelsea the average stamp duty bill is expected to rise by over £40,000. This may drive investor demand to higher yielding, lower value parts of the market, that equally are less likely to be affected by the continued political rhetoric around a mansion tax.

• Though warranting less media attention, the Autumn Statement also contained provisions to increase the levy on those long term UK residents who wish to retain their non-dom status. Though many will be homeowners, this may impact on the budget of long-term renters.

Taken from
Spotlight: Prime Rental Market - January 2015