A sense of certainty following November’s Budget drove demand in the prime London lettings market at the end of last year.

It followed months of speculation surrounding which taxes may rise as Chancellor Rachel Reeves attempted to rebuild her financial headroom.

The number of new prospective tenants registering in London in December was 12% higher than the same month in 2024, Knight Frank data shows. The number of viewings increased by 5%.

“The early days of January are busier than we would normally expect, which follows a rally towards the end of December,” said Jon Reynolds, head of lettings in the north, city and east London region at Knight Frank.

“There appears to be some positivity in the market and areas where stock levels are healthy have seen robust enquiry levels. The feeling at the moment is one of cautious optimism.”

That said, the number of tenancies started last year was down versus 2024. The figure was 6% lower in Q4 and 1% down over the year.

Supply Still Tight

The primary reason for the drop was a lack of supply. A growing number of landlords have sold or attempted to sell their property due to tax increases in recent years and the prospect of future legislative changes.

For example, the Renters Rights Act, which comes into effect in May, will create uncertainty around setting rents, repossessions and the sale process for landlords.

The number of new rental listings in London last year was 5% lower than in 2024, Rightmove data shows. The 2025 figure was 10% lower than the number recorded in 2023.

The growing financial burden means more landlords are exploring the option of setting up a company, although it is not a straightforward process, as discussed on a recent episode of Housing Unpacked with Nimesh Shah, the CEO of tax advisory firm Blick Rothenberg.

The one section of the market where the number of tenancies rose last year was the super-prime (£5,000+ per week) price bracket.

It was largely due to uncertainty in prime sales markets following changes to tax rules for non doms and wider speculation around wealth taxes ahead of November’s Budget. It meant more wealthy individuals hedged their bets by renting than buying.

The number of super-prime tenancies started in 2025 was 17% higher than the previous year, Knight Frank data shows.

Rents Still Rising

However, for those landlords staying in the sector, rental yields are increasing as a result of rising rents and price declines, as we explored here.

Indeed, average rental value growth in prime London markets has increased over the last year.

Rents in prime central London rose 1.7% in the year to December, which compares to a rise of 0.7% recorded in 2024. Meanwhile, an increase of 2.5% in prime outer London outstripped the rise of 1.3% seen in 2024.

What happens to supply, the number of tenancies started and rental value growth in 2026 will therefore continue to depend on the success of government initiatives.

Tom Bill is head of UK residential research at Knight Frank