Buy-to-let investment is showing early signs of recovery despite mounting tax pressures on landlords, according to the latest market analysis from Chestertons, as new figures point to improving activity across London’s sales and lettings markets.
Figures published by UK Finance show that 16,026 properties were purchased using buy-to-let mortgages across the UK during the second quarter of 2026, representing a 23% increase compared with the same period in 2025.
Meanwhile, Rightmove reports that average rental yields in London increased from 5.7% to 6.1% over the past year, the largest increase of any UK region, as strong tenant demand and a shortage of available properties continue to support rental values.
Chestertons’ latest figures also point to improving confidence across London’s wider property market, with buyer enquiries and registrations increasing year-on-year in October for the first time in over a year, alongside a rise in new tenant registrations.
Buy-to-let opportunities emerge despite tax pressures
According to Rightmove’s Rental Trends Tracker, average monthly asking rents in London increased by 3.2% year-on-year to ยฃ2,825 during the third quarter of 2026, compared with annual growth of 2.4% across the rest of Britain.
Meanwhile, Zoopla reports that the number of homes available to rent across Inner London has fallen by 13% over the past year, highlighting the continuing shortage of rental properties.
The figures come as the Government’s October Budget introduced further increases in income tax on rental profits for individual landlords, adding to existing pressures from regulation and borrowing costs.
However, the different tax treatment of limited companies could encourage more investors to adopt corporate ownership structures, particularly those looking to build or expand their portfolios.
Katinka Hill, Head of Lettings at Chestertons, said: “Despite the additional tax pressures facing individual landlords, we’re seeing opportunities for investors purchasing through limited companies, particularly those looking to build or expand their rental portfolios.
Renewed buy-to-let investment would be welcome news for London’s rental market, helping to maintain the supply of homes available to tenants while offering investors the potential for longer-term returns.
London lettings market: tenant demand strengthens
Chestertons recorded a 4.1% year-on-year increase in new tenant registrations during October, ahead of the 3.6% average increase for the year to date. Property portal enquiries remained broadly stable, rising by 0.2%.
The ratio of portal enquiries converting into tenant registrations reached 0.63, its highest level for seven months and above the 0.61 recorded a year earlier, suggesting that more prospective tenants are actively progressing their property searches.
Meanwhile, the number of landlords lowering their initial asking rents fell by 13.1% year-on-year, compared with a 9.1% reduction for the year to date.
This suggests that landlords are under less pressure to reduce their asking rents, reflecting sustained tenant demand.
Hill added: “For buy-to-let landlords, this is encouraging news. Rising rents and improving yields are creating opportunities for investors, although choosing the right property and setting a realistic asking rent remain essential to securing reliable tenants and minimising void periods.
London sales market: Buyer confidence begins to recover
Chestertons’ October sales figures also point to improving confidence, with property portal enquiries rising by 2.8% year-on-year and new buyer registrations increasing by 6%.
This marks the first time in over a year that both measures have recorded annual growth, suggesting that more prospective buyers are returning to the market following an extended period of uncertainty.
The figures come as the Government’s October Budget has provided greater clarity for buyers and sellers, while several mortgage lenders have reduced fixed rates following an easing in Government borrowing costs.
However, the Bank of England’s decision to increase its base rate from 3.75% to 4% in November highlights the continuing challenges facing borrowers.
Adam Jennings, Head of Residential at Chestertons, said: “Despite uncertainty ahead of the Budget, we saw encouraging signs of renewed buyer confidence in October, with both enquiries and registrations increasing year-on-year for the first time in over a year.
“Since the summer, we’ve also seen more sellers who had previously put their plans on hold deciding to move forward, bringing additional properties to the market.
“Although buyers remain price-conscious, the increase in activity on both sides of the market is encouraging. With much of the uncertainty surrounding the Budget now behind us, we expect confidence to continue improving in the months ahead.”
Outlook for London’s property market
Although it is too early to describe the latest figures as evidence of a sustained recovery, improving buyer activity, resilient tenant demand and signs of renewed buy-to-let investment suggest that confidence may be gradually returning.
For landlords and investors, rising rental yields and sustained demand could present opportunities, although higher taxation, financing costs and changing regulations remain important considerations.
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