New year, new challenges, new opportunities. In London’s rental market, those challenges and opportunities revolve around a combination of Government legislation, which may have led to a lack of supply in the market, and ultimately, the price increases that comes with it. Some of the legislation which we think could be contributing to an unsettled market include the following:

The Tenants Fees Act 2019
This passed into law in February 2019, and means letting fees were banned in England from June 1 2019, after already being banned in Scotland. This means all payments ‘in connection with the tenancy of housing in England’ are no longer allowed, unless they come under the list of permitted payments, which includes, tenancy deposit, capped at a maximum of five weeks’ rent if the total yearly rent is under £50,000, or six weeks’ if it’s £50,000 or more, fees for ending a tenancy early, change of tenancy and a many more.

Stamp duty on second homes
Buyers of second homes, including buy-to-let properties, now need to pay an extra 3% in Stamp Duty on top of current rates for each band. This increased rate applies to properties bought for £40,000 or more. This will be a blocker for some, especially those people attempting their first foray into the rental market.

The Tenant Tax
Ignoring the slightly disingenuous name, this was first discussed in the emergency budget in 2015, and is set to be fully enforced by April this year. The changes mean people will no longer be able to deduct mortgage interest costs from your taxable profits if the property is owned by an individual.

What’s next for the market?
There have been increases in rent over the past 12-months, with Letting Agent Today reporting, ‘Greater London rents have risen an average of four per cent in the past year [2019] - but some boroughs performing above-average have seen rent increases up to an extraordinary 14 per cent.’ Using data from property market monitoring website, Home, LAT goes on, ‘Wandsworth in the south of the capital has seen the largest rise - just over 14 per cent - with Hackney, Haringey, Hammersmith and Fulham, Southwark and Islington also seeing rent increases of 10 per cent or more.’

The increase in rents is indicative of low supply across the capital. Between late 2015 and early 2017, rent in the capital dropped by nearly 10 per cent due to an influx of new properties. But in Zoopla’s rental market report for the third quarter of 2019, the property company says, ‘An increase in the supply of homes for rent - as investors rushed to buy homes before April 2016 increased supply at a time when affordability was approaching a high point in mid 2015. At the same time, the EU referendum result impacted levels of in-migration while the growth in employment also started to slow. The net result was a realignment of rental levels with modest falls registered across London.’

Supply is limited, but this makes for steady or neutral growth for landlords who stick to the market. Zoopla’s report goes on, ‘rental growth in London has turned positive since 2018, on tighter supply and increased demand. More recently, rental growth has plateaued at c2% and has increased to +2.3%.’

So, in short, prices are increasing due to diminishing or unchanging demand, uncertainty amongst renters and landlords waiting to see how policy may affect their business or investments.