Rental Market Adjusts to Reforms and Future Tax Risks

Rental values are continuing to climb as a result of the Renter’s Rights Act (RRA).

The increase was 3.3% in the year to June in prime outer London, which is the highest figure recorded since June 2024, a time when rents were still coming down from pandemic-era highs.

The RRA was introduced in May to tip the balance of power in favour of tenants. The full details can be found here, and the new rules cover the setting of rents, repossession, selling restrictions and pets.

However, a growing number of landlords have sold up due to the Act, which has pushed supply lower and rents higher in many areas of London. Some landlords have also raised rents to cover the additional risks property owners face.

The RRA is only the latest in a series of obstacles for landlords in recent years, which have included higher rates of stamp duty and the ending of tax breaks. A future requirement for an EPC C rating for rental properties may be a further deterrent, as I explored on a recent episode of Housing Unpacked. 

There was a smaller 0.9% annual increase in prime central London. Supply has been less constrained in higher-value markets as more discretionary owners let their property out due to the current weakness in the sales market.

The number of new rental listings in prime central and prime outer London in the first six months of this year was 15% below the five-year average, Rightmove data shows.

Meanwhile, the number of new prospective tenants was 2% lower, reflecting the imbalance between lower supply and resilient demand.

Further Aggravation

The situation could be aggravated by the rumoured alignment of capital gains and income tax rates under a new Andy Burnham government, which would hit higher and additional rate income taxpayers hardest.

However, as discussed on a recent episode of Housing Unpacked with former Treasury special advisor James Nation, modelling suggests that pushing capital gains tax rates higher would reduce the tax take.

Meanwhile, a growing mood of caution ahead of the autumn Budget and imminent change of government means wealthy investors are hesitating even about renting in prime central London. 

With the government seemingly unable to cut spending meaningfully or introduce broad-based tax rises, we could see a repeat of last year’s smorgasbord approach of smaller wealth-based rises like the higher-value council tax.

The rental market had initially benefited from rule changes such as the ending of non dom status as wealthy overseas investors kept their options open by renting, but more are now hesitating as Andy Burnham looks set to succeed Keir Starmer and the Labour Party moves further into its soft-left political comfort zone. 

There were 17% fewer deals above £5,000 per week in PCL in the first six months of this year compared to 2025, Knight Frank data shows. There was an equivalent jump of 21% between 2024 and 2025.

Meanwhile, there was a smaller 4% drop across the whole of London and the Home Counties last year, reflecting the relative strength of markets underpinned by UK-based tenants.

“Renting became more popular among high-net-worth individuals last year due to non dom rule changes because it gave them flexibility,” said Tom Smith, head of super-prime lettings at Knight Frank. “If we fast forward 12 months, they are now pressing pause due to the change in government and the wealth taxes rumoured to be included in the Budget.”