London rents will rise slightly as market adjusts – Chestertons

London’s private rented sector is experiencing a period of moderation, with Chestertons forecasting rent increases of just 1.5% – that’s slightly lower than predicted inflation – in 2025.

This follows a year of slower rent growth due to increased supply and mounting financial pressures on tenants.

Chestertons says: “With average rents now close to 40% of incomes, many tenants are struggling to absorb further cost increases, despite rising wages.

“This has resulted in fewer people entering the market and more renters negotiating lower prices.”

Rent hikes are unlikely

While a steady stream of tenants is expected to persist, driven by the high costs associated with homeownership in the capital, big rent hikes are unlikely.

Chestertons says that rents in the capital will remain almost flat as slower wage rises will restrict tenants’ ability to afford higher rents.

The agency says: “With rents already consuming a large portion of household incomes, significant increases could risk pricing more tenants out of the market.

“Landlords will need to adapt, balancing rental expectations while responding to tenants who are increasingly selective and negotiating for better value.

“Smaller, more affordable properties, particularly those well-serviced by public transport links or located centrally, are likely to remain highly sought after, potentially obtaining higher rent increases.”

Modest rise in London’s property prices

Chestertons is also forecasting a modest rise in property prices across the UK this year, with a projected rise of 3.4% nationally and 3% in London.

This anticipated growth is underpinned by several factors, including lower mortgage costs, consistent economic expansion and inflation remaining within the Bank of England’s 2% target.

While UK property prices saw a 3% increase in 2024, the London market experienced a decline of roughly 3%.

Chestertons attributes this drop to three key factors:

• Increased supply: Despite recent interest rate reductions, a significant number of homeowners who secured mortgages at lower rates are now facing substantially higher repayments as their fixed-rate terms expire. This has prompted a surge in property listings, pushing prices down
• Stamp duty impact: The government’s decision to increase stamp duty for second homes and buy to let properties is anticipated to dampen investor demand. However, this policy change may create a more favourable environment for first-time buyers entering the market
• Shifting overseas demand: A stronger pound and the removal of the non-domiciled tax regime could potentially deter overseas buyers, particularly impacting the high-end property market in prime central London.

Chestertons believes that for 20205, big house price rises are unlikely, though improved affordability, pent-up demand and renewed market confidence should support steady property price growth over the next three years.

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