A dramatic slowing in the pace of London rental increases in the second half of 2016 was a result of caution from agents and landlords according to property expert Homelet .
And it may impact on their ability to increase prices in 2017.
Rent inflation in Greater London dropped by more than a third in 2016 according to the latest data from the Homelet Rental Index – falling from a 6.8% increase mid-year to 2% in December
This meant overall rents only rose by £30 in the capital over the year with the average cost £1,478 in December 2015 and £1,508 in December 2016.
Homelet CEO Martin Totty said the figure added weight to the idea that an affordability ceiling was now becoming an issue and landlords and agents were being cautious.
Rent increases across the UK also slowed on average over the second half of last year. They had increased by 3.8% in December 2015 but went up by only 1.7% in December 2016.
Rental price inflation is still running ahead of general inflation as measured by the consumer price index.
However, scope to further increase prices was called into question by impending tax changes set to take effect in April, potentially reducing the returns available from buy-to-let property investment.
Martin 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 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.”
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