Prime London & UK rental market update Q3 2026
Constrained supply and steady rental demand continued to underpin rental growth in Q2, despite significant regulatory and tax changes affecting landlords.
Key facts:
- Prime London rental growth continued in Q2, up 2.3% on the year, compared to a 2.1% rise in Q1
- Average UK asking rents are up 2.1% on the year, with 5% increases in the most affordable markets
- Demand in the rental market remains steady in the face of tighter supply. The Renters’ Rights Act came into force on May 1st, the biggest change to the rules around renting in England in a generation, and some landlords exited the market ahead of the changes
Supply across the rental market remains constrained, with tax changes and the Renters’ Rights Act (RRA) prompting a number of landlords to exit the sector and limiting the amount of rental stock available. However, a proportion of properties sold by exiting landlords are being acquired by larger investors, who are taking the opportunity to expand their portfolios and return these homes to the rental market.
Also affecting the decisions of those exiting are higher mortgage rates as well as the upcoming additional income tax charge coming in in April 2027. At the same time, demand is not abating, with data from Zoopla showing an average of 5.6 enquiries for every rental property, higher than the average 5 enquiries before the pandemic hit the UK.
Rents in prime central London climbed by 0.9% for houses and 2% for flats in the year to June, while in the wider prime London market rents were up 2.3%. The rental market in South West prime London is outperforming, with a 3.6% rise in rents on the year, highlighting the strength of demand in domestic-driven prime rental markets in the capital.
Affordability constraints will limit the scale of rental rises however, and we are forecasting rents to continue rising at slightly above the current pace, with a +3% rental growth in prime London this year.
UK rental market
The headline growth in asking rents across the UK has slowed over the last year, with the average rise at 2.1% in the year to June, compared to 2.8% a year ago, according to data from Zoopla.
There is still strong tenant demand in the market, and this shows no sign of abating. Yet supply is still constrained, and this will continue to put a floor under rents.
As can be seen from the map below, stronger rental growth is still being registered in the more affordable markets in the North of England.
Landlords are already adjusting to new legislation under the RRA, an upcoming rise in income tax in 2027, and confirmation that all rental properties must meet EPC C standards by 2030. The drive to improve energy efficiency is positive, but landlords with properties below this rating face a decision over whether to make the necessary investment. Under the rules, landlords must either raise the EPC rating or spend at least £10,000 trying to do so, which is likely to keep pressure on rental supply.
As conflict in the Middle East continues, more prospective buyers may take a wait-and-see approach while mortgage rates remain volatile. This could keep some households in the rental market for longer, adding further support to demand.
The outlook is for modest rental growth overall, with performance varying locally depending on supply levels and affordability constraints.
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