Rents in London and the Home Counties rose month-on-month in July for the first time since the start of the pandemic, while prime property sales dipped as the stamp duty holiday began to wind down, according to Knight Frank.
The estate agent says rental values lifted between June and July for the first time since the start of the pandemic, “as the steep declines over the last 17 months begin to reverse”.
There was an increase of 0.2% in prime central London properties, meaning the annual decline narrowed to 10.5%. In prime outer London, the same monthly rise meant the annual fall was 7.6%, the lowest it has been since September 2020.
As supply tightens and demand strengthens, the report says upwards pressure on rental values will grow in the second half of the year.
“Rents will end the year flat in both prime central and outer London as the bounce back from the pandemic gathers pace,” says the firm’s July London Lettings Index.
Supply spiked during the pandemic as short-let properties moved onto the long-let market, but the report says this trend is reversing as lockdown rules are relaxed.
The ‘race for space’ and the ‘return to the office’ are helping to drive rental prices, says the survey.
However, the desire for space among renters means the supply of certain types of property remains low, such as houses in areas like Chelsea and Richmond.
The number of tenancies started in July was 48% above the five-year average.
The data adds a third and increasingly important factor, returning school and university students, who typically make up around a quarter of tenancies agreed in the capital by the estate agent.
It says the ratio of new prospective tenants compared to market valuation appraisals was 6.5 in July, the highest it has been since before the pandemic in January 2020.
Knight Frank head of UK residential research Tom Bill says: “The see-saw of high supply and low demand is tipping back the other way.
“Demand is coming from multiple sources and rental values are getting stronger as a result.”
On prime London house sales, the firm says this number was 20% below the five-year average in July, excluding 2020, as the stamp duty taper begins to unwind.
On 1 July, the stamp duty nil-rate threshold was reduced from £500,000 to £250,000 until the end of September.
From 1 October, the threshold will return to £125,000 – or £300,000 for first-time buyers purchasing a property worth up to £500,000.
The decline in prime London sales was skewed towards lower price brackets, the estate agent adds in its July Prime London Sales Index.
It says in homes for sale below £1m, the fall was 39%, underlining the proportionately larger impact of the maximum £15,000 stamp duty saving.
In homes above £2m, the number of transactions was 3% higher than the five-year average last month.
But the survey says: “This discrepancy shows a greater urgency to beat the 30 June deadline in lower price brackets rather than a higher propensity for deals to subsequently fall through.
“The number of sales in June below £1m was three times higher than the five-year average, whereas the increase was 78% for properties valued above £2m.”
It adds: “Prices in London will also be buoyed in coming months due to lower levels of supply, which is something previously more notable in property markets outside of the capital. The decline is the result of the summer break and end of the stamp duty holiday.”
Annual price growth in prime central London was 0.8% in July, the highest figure since May 2016, the survey says.
In prime outer London, annual growth was 3.1% for the third consecutive month. Annual growth topped 5% in such areas as Queen’s Park, 5.9%, Richmond, 6.7%, Dulwich, 6.7%, Belsize Park, 5.1% and Wandsworth, 5.4%.
Knight Frank’s Bill says: “The stamp duty deadline drove transactions across all price brackets in June.
“However, the deadline was less pressing for higher value transactions because of the proportionately smaller saving, which will support activity in the prime market over the summer.”
