Tenant demand is up 7%
Rental demand in London climbed 7% above last year's level in September, according to Rightmove, with higher mortgage rates and deposit hurdles cited as possible reasons some would-be first-time buyers are renting for longer.
Across Great Britain, rental demand remains 2% below 2025 levels. The North East, up 1%, is the only other area recording annual growth, and every other region is below last year.
Rightmove's Daily Demand Tracker, which counts tenant enquiries to letting agents, shows London moved above the equivalent 2025 level on September 7 and has stayed ahead since. Until the end of August, demand in the capital had averaged 7% below 2025 levels throughout 2026.
Borrowing costs and deposit hurdles
"One possible factor behind London's recent rise in rental demand is that some would-be first-time buyers may be taking longer before committing to a purchase," said Colleen Babcock, property expert at Rightmove.
She said affordability remains a challenge for many aspiring homeowners in the capital, particularly around saving for a deposit and bridging the gap between house prices and earnings.
Moneyfacts data shows the average two-year fixed rate stood at 5.73% in mid-September, up from 4.84% in March, adding £131 a month to a £250,000 mortgage over 25 years. Bank Rate has stood at 3.75% since December 2025 and was held again on September 17.
"Mortgage rates remain relatively high and close to some of the highest levels seen in recent years, while the gap between house prices and earnings in London continues to make home ownership a challenge for many aspiring buyers," Babcock said.
Zoopla's September rental report found the average London buyer needs an extra £35,500 in deposit to offset higher rates, close to twice the £18,200 required nationally.
Executive director Richard Donnell said higher rates "are keeping more would-be first-time buyers in rented homes for longer".
Nationwide's January 2026 affordability report estimated someone saving 10% of average take-home pay would need around nine years to build a 10% deposit in London, against nearly six years nationally.
Supply falls while prices soften
The number of homes available to rent in London is 10% lower than a year ago, compared with a 0.4% increase across Great Britain.
Research by Elliot Leigh found 39% of landlords in London are considering leaving within the next year. Nationally, Pepper Money estimates around 220,000 households, roughly 5% of the private rented sector, could leave by the end of 2026, with more than 65,000 exits attributed directly to the Renters' Rights Act.
The average advertised rent in London stands at £2,763pcm, up 3.1% year-on-year, against a national average of £1,578pcm, up 2.4%.
ONS figures show average prices in the capital fell 3.3% in the 12 months to July 2026, the eleventh consecutive month of annual decline.
Smaller homes lead demand
Demand for 0-1 bedroom rental homes in London is up 10% year-on-year, against a 4% rise nationally. Their average advertised rent in London is £1,904pcm, compared with £1,150pcm nationally.
London demand for two and three-bedroom homes is up 6% and 2.5%, against national falls of 4% and 6%.
Ouali Chriqy MNAEA, estate agent at eXp UK, said smaller homes attract younger renters, single households and people moving to London for education or work.
"At the same time, high house prices and affordability constraints mean that, for many people, renting is not simply a preference but the more viable option," he said.
Policy and product options for renters
Babcock said these pressures could be encouraging some movers to stay in the rental sector for longer while they assess their options, save for a deposit or wait to see how support schemes such as the proposed Your First Home initiative develop.
"It's too early to draw a direct link, but it may help explain why demand for smaller rental homes in London is currently rising faster than the national average," she said.
Your First Home, announced by Prime Minister Andy Burnham in September, is expected to support 2.5% deposits backed by 20% government equity loans for first-time buyers in England purchasing new-build homes from participating developers. Chancellor John Healey is due to confirm funding and timelines at the Budget on October 28.
Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol, said the equity loan would leave the mortgage at 77.5% loan-to-value, giving access to lower rates than a 95% mortgage.
He also called for further stamp duty support in London and the South East, where many new-build homes sit above the £300,000 first-time buyer threshold.
L&C Mortgages reports the average first-time buyer deposit is close to £70,000, while £5,000 minimum deposit products are increasingly common alongside 98% and 99% loan-to-value deals.
