Why are rents so high in London right now?

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We sold a property and want to move to a new area. The idea was we’d rent first to see if it fits. But… oh my god! The price of rents right now!

I feel like I should have expected it / seen it coming, but I did not / have not. Is it a direct consequence of interest rates and mortgages rising? Or is something else at play?

And is affording these rents?!

Are they much higher than they were a year or two ago? Rent in London has always been at crazy prices compared to almost anywhere else in the country. When you live there it becomes the norm - an unaffordable norm! When I moved up north 10 years ago a lot of people thought I was joking about rental and house prices in London.

They’ve gone up significantly in a year as far as I can tell. Before we listed for sale we got our place appraised for rental. It was £2400pm (I know - still awful!). The EA said that was the top, we wouldn’t get more than that. I have just seen somewhere almost identical (street, size, spec) at £3000pm. It doesn’t seem to be overpriced considering others around it, either. I do not understand!

No they’ve definitely gone nuts. We’ve moved out to zone 5 and bought a flat now but our old rented (shabby run down two bed) place in zone 3 has been listed for £1850. We paid £1475 just a year ago. From the pictures it’s clear that the landlord hadn’t done a thing to spruce it up.

It’s likely due to the government’s (Osborne’s) S24 tax change kicking in. The landlords aren’t making hardly any return, it’s all tax.

lack of supply is the reason

I find it extremely hard to believe London landlords are making ‘hardly any’ return, especially if they bought the properties a long time ago and have relatively low mortgages on them.

Hi OP, we have a flat in zone 2 that we rent out. Our tenants gave notice after a year so we re-listed at £100/month higher than last year. We had 150 applications, narrowed it down brutally to 25 viewings, had 22 offers, and ended up renting to one of the 5 people who offered £250/month above what we'd asked for...

However, it's very possible that we'll sell soon. When the fixed rate expires our profit will likely be very slim/zero. There are new rules coming regarding energy certificates - our flat is ground floor, converted from a 1890s townhouse, can't be insulated, has massive high ceilings and lots of beautiful but wonky/draughty original features. It would probably be unaffordable for us to get it up to energy efficiency standards, even if it's physically possible, which I doubt.

I think that LLs selling up for these kinds of reasons has reduced the rental stock available, and that's the key driver in pushing up prices. Plus the general housing market madness has made lots of potential FTBs hold off and stay renting til things settle down - so there's more demand also. It's a real mess.

Wow, seems like an awful time to be a renter!

So reduced housing stock and rising interest rates perhaps? Maybe places going on Airbnb instead of to rent?

Any landlord with a mortgage on the property is now paying a huge amount of more tax as mortgage interest is no longer included as an expense. It's now the only type of income where you have to pay tax on more than just profits. Add to that all other costs going up and it's obviously going to be reflected in rental prices.

It’s criminal at the moment. We were told in July 2022 that our LL would be putting the rent up by £200pcm taking it to £1971pcm. I couldn’t justify it for the condition of the flat, so we used our (small) savings and managed to get a shared ownership place with a deposit of £6214, our monthly payments are now £1130 so considerably cheaper. We didn’t look into shared ownership before because I didn’t think we had enough saved. Thankfully it worked out.
Friends of ours who were looking to rent a one bed place found one down the road from us for £1300pcm but what with the deposit, 5 weeks rent up front and moving costs, it cost them about £4.5k to move. I find that extraordinary- they are just renting!
London had always been high but this is something else.
Friends also discovered that when a property is advertised at say £1200pcm the landlord is actually looking for £1450pcm or £1200pcm but with 6 months rent in advance. Because the demand is so high, LL can ask for outrageous amounts, and someone will pay it.

There was a really good episode of The News Agents podcast about this back in early December/November time. It made me very very glad I don’t rent.

Landlord's have been killed off, that has created a massive lack of supply. 10 applications within a week are now the norm, and most EA won't take viewing bookings for rentals after a couple of days on the market. Also in London, many have sold and moved away and are now needing to rent to get back into the office.

Supply and demand. Always. Population grows, we don’t build enough homes.

Landlords can no longer deduct interest from income so are selling up. I'd say anyone with less than 50% equity are probably not making a profit.

My tenants were thinking of leaving, they were paying £1340 and I wanted to increase to £1400. My estate agents thought £1700 was very achievable. I've renewed with my tenants at £1400 as they are good reliable low maintenance people.

I've had a yield of 3% on this property this year, this is going to be a lot less as the mortgage is up in March. Thinking about selling as I'm not sure it's worth the hassle.