Savills said ongoing regulatory and tax pressures were continuing to weigh on landlord sentiment.
While it restricted the amount of rental stock available, it helped drive rental growth.
Jessica Tomlinson, research analyst at Savills, said: “There are signs that landlord caution is continuing to constrain rental supply, particularly in the lower rental value bands, where pressure is most acute.
“That, in turn, is helping to support rental growth, although affordability constraints continue to limit the pace of increases.”
She added that it was too early to assess the full impact of the Renters’ Rights Act, but said it had made some landlords more cautious and prompted some to reassess their options.
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Landlords retain yields
Meanwhile, stronger rental growth coupled with softer capital values have improved returns for landlords.
Rental growth was strongest among properties with annual rents below £100,000, where Savills said a reduction in available stock had intensified competition among tenants.
Prime Central London rents rose by 1.1% during Q3 2026 and by 1.9% annually, while outer prime London rents increased by 0.9% over the quarter and 2.9% year-on-year.
Yields on prime London flats were broadly above 4%, reaching an average of 5.8% for one-bedroom apartments, while average yields across Prime Central London were at their highest level since 2009.
Across prime regional markets, rents increased by 0.3% during the quarter and 1.5% annually.
“Affordability constraints are increasingly acting as a ceiling on rental growth, with many tenants reaching the limits of what is realistic and sustainable within household budgets,” said Tomlinson.
She added: “With short-term letting becoming a less viable alternative for many, and yields strengthening, there is a growing incentive to remain in the rental market rather than wait for more favourable sales conditions.
“This should help support supply and create opportunities for well-positioned landlords as the market adjusts to the evolving regulatory landscape.”
