The past 12 months was a year of two halves for new rental agreements with rents averaging 4% or higher and peaking at 4.7% in June, before dropping to the lowest annual rate of 1.7% in December 2016.

HomeLet’s December Rental Index shows the annual rental inflation on new tenancies fell from 2.9% in November 2016 was way below December 2015 when it was 3.8%.

Across the UK as a whole, the average rent for a new tenancy commencing in December was £892 per month, compared to £877 in December 2015.

In Greater London, rents rose from £1,478 to £1,508 over the same period, a smaller percentage increase of 2% annually compared with 6.8% in the middle of the year, but still a higher rental value.

Martin Totty, chief executive of HomeLet, said: “While demand for rental property remains strong, landlords always have to be mindful of tenants’ ability to pay higher prices.

“The data recorded by the HomeLet Rental Index during the second half of last year suggests we have now begun to approach an affordability ceiling, particularly in areas of the country where rental price inflation was previously highest.

“While the industry has speculated that landlords will increase rents to mitigate the impact of factors such as the impending reductions in mortgage interest tax relief, this may prove problematic given the pricing trends we’re currently seeing in the market and the potential for higher inflation and a squeeze on real earnings in 2017.

“The private rented sector is now having to cope with a series of disruptive elements, just at a time of great economic uncertainty, and amid a continuing systematic imbalance between supply and demand for residential property. The assumption that landlords have sufficient means to bear higher costs will soon be tested. Tenants must hope they do.”