In 2026, the private rental sector remains defined by undersupply rather than cyclical shocks. While interest rates have eased from their 2023–24 peaks, they are still higher than the ultra-low cost of debt seen pre-2020. Higher deposit requirements, stricter lending criteria, and elevated mortgage servicing costs continue to delay first-time buyer activity. As a result, renter demand across London remains strong.
With mortgage rates rising beyond 6% in recent months, an increasing number of Londoners are sticking to renting. Combined with rising inflation, a cost-of-living crisis, and increased interest rates, buying a house is now impossible for many.
• Longer renter lifecycles, particularly among professionals and families
• Population recovery and employment growth, especially in inner-east and regeneration zones
• Landlord attrition, as regulatory pressure, EPC upgrade costs, and taxation changes reduce the number of small private landlords
Crucially, new rental supply has failed to offset exits. While Build-to-Rent has expanded, it remains geographically concentrated and priced at a premium, doing little to relieve pressure in traditional private landlord stock.
Rental yield is a percentage figure that represents the profit that a property investor can expect to make on a rental property. The figure is derived by dividing a property's annual rental income by the total amount invested.
For example, if an investor pays £200,000 on a rental property and expects to bring in £11,440 in rent per annum, the rental yield figure would be 5.72% ((11,440 divided by 200,000) x 100).
Rental growth has normalised from the exceptional spikes of 2022–2024 but remains above long-run averages, particularly in outer and well-connected east London locations. At the same time, capital values across much of London have grown slowly or stagnated.
For landlords, this divergence is critical:
slower price growth + continued rent increases = stabilising or improving yields.
In 2026, gross yields across London are increasingly location-driven, with outer London outperforming prime areas on income return, while prime districts continue to offer yield compression in exchange for long-term capital security.
We expect to see higher returns in outer East London and parts of West London, driven by affordability, while central areas remain lower due to high property prices.
Current forecasts from Zoopla, JLL, and Knight Frank all suggest an average 3-4% rental growth in London for 2026.
Due to the affordability ceiling in Central London, this may be closer to 2%. Outer boroughs where there is more growth, including Walthamstow, Stratford, Hackney and Croydon, could see up to 6%.
Investment strategy: Outer borough focus for yield, central for capital appreciation.
In 2026 we expect the highest demand to be for one- and two-bedroom apartments, particularly near transport hubs, as well as energy-efficient properties rated C and above.
Young professionals continue to prioritise affordable living with community. In HMOs they want co-living spaces that are enjoyable to be in where they can socialise with their roommates with good internet connectivity.
Family homes in school catchment areas are always a priority, however with VAT introduced on private school fees in 2025, this is driving demand closer to good state schools.
As you’d expect, those less in demand will be the opposite - properties requiring major EPC work, or homes without good transport links (particularly large homes that come with higher costs).
1. Chronic undersupply: London’s rental supply maintains relative scarcity whilst demand remains strong.
2. Affordability ceiling: Rents already consume 39% of average income, limiting dramatic increases but steady rental growth is expected.
3. Wage growth: Wage growth is anticipated to fall gradually to 3.8% in 2026 and 3.5% in 2027 (British Chambers of Commerce) meaning some renters will be put off buying and continue renting.
4. With the Renters’ Rights Act coming into effect this year, some landlords are exiting the market reducing supply. Professional landlords will begin to dominate.
• Yield dispersion is widening: blanket London averages are increasingly misleading.
• Outer and east London outperform on income, while prime areas prioritise stability.
• Net yields matter more than gross: EPC compliance, service charges, and financing structure are now decisive.
• Rental growth is moderating but persistent, underpinned by supply constraints rather than speculation.
If there is an area you want to investigate further or are considering investing in, then get in touch with one of our offices situated across London, who will be able to take you through our buy-to-let investment opportunities. If you already have a property, click here to get a rental valuation.