Just as the prospect of tax rises in the Budget is causing uncertainty in the prime London sales market, Labour’s plans for a Renters’ Rights Bill is doing the same thing in the lettings market, Knight Frank reports.

The agency’s figures show that rents rose by an average of 2.5% in the year to July in prime central London. 

This represents the first time that annual growth has been below 3% in three years. In prime outer London, the increase was 2.9%, which was also the lowest figure since July 2021.

Tom Bill, head of UK residential research at Knight Frank, said: “For now, two things are known. First, the government will reintroduce their own version of the Conservative Party’s Renters (Reform) Bill during this Parliament.

“Second, [the government] is talking tougher on landlords. Measures could include making it harder to evict tenants and tighter rules around the green credentials of lettings properties, according to recent press reports. 

“Meanwhile, capital gains tax could rise following October’s Budget.”

Bill added: “If enough landlords sell up because any new rules are too financially punitive, it would put upwards pressure on rents. Ironically, the speculation comes at a time when supply and demand are rebalancing after several tumultuous years, which is putting downward pressure on rents.”

The net balance of landlord instructions in London in July was 21, the highest it has been since October 2020, the monthly RICS survey found last week. A score above zero indicates more respondents are reporting a rise than a fall.

As supply continues to recover, the high rental value growth of recent years has self-corrected.

“As political aspiration lives alongside economic reality in the lettings market, there is certainly the possibility of friction,” Bill concluded.