Recent data from a leading index indicates that parts of Greater London, the South East, and the South West are experiencing the highest levels of property sales stock in 12 years.
One of the key reasons behind this surge in available properties is the ongoing departure of landlords from the private rental sector. Many are choosing to exit due to increasing tax burdens and complex regulations, making property investment less attractive.
According to the latest findings from the Home index, certain areas in southern England are seeing an excess of homes on the market. This oversupply is putting pressure on sellers, leading many to reconsider their pricing strategies.
As a result, property owners in these regions are becoming more open to lowering their expectations in order to secure a sale. With more homes available and buyers having greater bargaining power, the market dynamic is shifting significantly.
This trend stands in stark contrast to the property market in northern England and Scotland, where conditions remain more stable.
Doug Shephard, director of Home, attributes the growing oversupply of properties in the South to the declining viability of the private rental sector. Landlords are increasingly finding it difficult to generate sufficient returns, prompting many to exit the market.
Shephard explains that rental yields are a crucial factor in this shift. In some areas of London and the South East, rental yields are falling below 3%, which is often insufficient to cover mortgage payments and other associated costs. As a result, investing in rental properties in these regions has become far less attractive.
Meanwhile, property investors in northern England continue to benefit from significantly higher returns. Some postal districts in the North are offering rental yields as high as 12%, making them a far more lucrative option compared to the South.
This disparity in returns is a major driving force behind the current market conditions. Many landlords in low-yielding areas are choosing to sell their properties, adding to the growing number of homes on the market.
At the same time, estate agents and sellers are beginning to acknowledge that demand in these oversupplied areas is unlikely to keep pace with the rapid increase in available properties.
The situation has been further complicated by an increase in stamp duty, which came into effect in April. This added financial burden may deter new investors from entering the market, potentially prolonging the surplus of homes for sale.
For buyers willing to take a calculated risk, the current market conditions may present some lucrative opportunities. However, as many seasoned investors caution, attempting to capitalise on a declining market—often referred to as “catching a falling knife”—can be risky. The uncertainty surrounding property prices and rental yields means investors must carefully assess market trends before making any decisions. While some areas may offer good value for money, the broader market remains unstable, and further declines could still be on the horizon.
One of the biggest questions facing landlords and property investors is when the market will return to normal levels of supply and demand. Since rental yields play a crucial role in a property’s long-term value, market recovery is likely to depend on a combination of rising rents and falling house prices. If landlords continue to exit the market due to tax burdens and regulatory pressures, supply could remain high, prolonging the downward pressure on property prices. Only when yields reach a sustainable level for investors will supply and demand begin to rebalance, making the market more predictable.
In other findings from the latest Home asking price index and market survey, annualised national asking rents have only increased by 1.9%. This relatively modest growth has been influenced by falling rental prices in London, where the average rent has declined by 0.5% over the past year. While some regions are experiencing rental growth, London’s struggles reflect wider concerns about affordability and the impact of economic uncertainty on tenant demand.
Within the capital, certain boroughs have experienced more significant downturns. The City of London has seen the most dramatic drop in asking rents, falling by 18.9% year-on-year, followed by Hounslow, which recorded a 7.7% decline. These figures suggest that some areas may be struggling with an oversupply of rental properties, forcing landlords to reduce prices to attract tenants. Additionally, factors such as remote working and lifestyle changes post-pandemic may have contributed to declining demand in certain locations.
However, not all areas of London have suffered. Some boroughs have performed much better, with Kingston upon Thames, Sutton, and Wandsworth showing rental increases of 8.9%, 8.8%, and 8.3%, respectively. These areas have remained resilient, possibly due to sustained demand and lower supply pressures. The varying performance of different boroughs highlights the complexity of London’s rental market, where some locations continue to thrive while others experience significant downturns.
On a broader scale, the strongest rental growth has been recorded in the East Midlands. This region has outperformed the rest of the country, with average rents rising by 10.2% over the past year, highlighting a more robust rental market compared to London and the South East. The East Midlands’ relative affordability and strong tenant demand have made it an attractive area for landlords looking to secure higher yields.
Overall, the current property market is in a state of flux, with regional variations playing a key role in shaping investment opportunities. While some areas struggle with an oversupply of rental properties and declining yields, others continue to see strong demand and rental growth. For landlords and investors, understanding these trends and adapting to the changing market conditions will be crucial in making informed decisions about property investments.
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