January began with a sense of activity across the London lettings market, but the pace did not sustain itself. While the first two weeks saw solid levels of tenant enquiries, that early momentum eased as the month progressed. The net effect was a softer overall picture, with new prospective tenant registrations finishing 4% below the five-year average and the number of tenancies agreed down 12%.
Part of the early demand appears to have been driven by renters activating plans that had been delayed around the time of the Autumn Budget. Once that backlog worked through the system, underlying conditions became clearer. At the same time, available stock remains constrained.
New lettings listings across prime central and prime outer London were 13% below the five-year average in January. Compared with January 2019, overall listings were roughly a third lower.
Seasonality isn’t the only factor
The structural issue behind this contraction is not seasonal. Over recent years, successive tax and regulatory adjustments have reshaped the economics of being a landlord. The forthcoming Renters Rights Act, due to take effect in May, adds another layer of uncertainty. Provisions concerning rent increases, repossession processes and sales during tenancies are prompting some landlords to reassess their position.
That reassessment is visible in sales data. While rental listings have fallen, the number of homes listed for sale in London was 14% above the five-year average in January. Some landlords appear to be exiting ahead of legislative change. Others are hesitating to enter the market, awaiting clarity on how repossession cases will be handled and whether court capacity will become a bottleneck under revised rules.
For landlords who remain, the operating environment is becoming more compliance-driven and process-focused. Uncertainty around future rent review mechanisms may encourage more careful structuring of tenancy agreements and a closer look at cashflow resilience. Those considering disposals will need to weigh timing carefully, particularly if selling with a sitting tenant becomes more complex. For portfolio landlords, diversification of risk across locations and price brackets may become more relevant than yield alone.
We can help tenants too
Tenants face a more nuanced landscape. Although supply is tight, rental growth in prime central London moderated slightly. Annual growth stood at 1.3% to January, down from 1.7% in December but higher than the 0.6% recorded in January 2025. This reflects the typical seasonal lull at the start of the year rather than a structural shift. In prime outer London, however, average rents rose 2.7% in January, the strongest monthly increase since July 2024. With fewer properties available at mainstream price points, competition remains evident. Interestingly, higher-value stock has proven more resilient. The number of London rental listings above £1,000 per week was 31% above the five-year average. In parts of the prime market, some owners are opting to let rather than sell into softer sales conditions, which has helped sustain supply at the upper end. This divergence suggests that pressures are not evenly distributed across the capital.
Taken together, these indicators point towards a market defined less by overheating demand and more by constrained participation. The key question for 2026 is not whether tenants want to rent in London — demand remains structurally supported — but how many landlords are prepared to provide that housing under evolving rules.
If legislative change reduces flexibility or increases perceived risk, supply may continue to tighten, particularly in mid-market segments. That in turn may place sustained upward pressure on rents despite periods of seasonal softness. For both landlords and tenants, the year ahead is likely to hinge less on short-term fluctuations and more on how the new regulatory framework beds in — and how confidently participants respond to it.
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