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Rental values in prime central London rose for the eighth successive month in October, recovering to a level last seen two years ago, the latest index report shows. Rental values climbed 0.5% in October as the UK economic recovery strengthened and yields saw the strongest improvement in three years, according to the report from Knight Frank. Annual growth was 2.6%, the highest rate since December 2011 and in the third quarter of 2014 tenancies agreed rose by a quarter while tenancies started increased by a third. Rental yields rose to 2.9%, recording the biggest monthly gain in more than three years, the report also reveals. It explains how in October 2012, rental values were at the early stage of a shallow decline that took place against the background of a tepid economy and a strong sales market. Now the International Monetary Fund has forecast that UK economic growth will outpace other developed countries in 2014 and at the same time demand in the sales market shown signs of cooling ahead of next May’s general election and uncertainty surrounding the possibility of a mansion tax. ‘With UK economic data remaining mixed, the prime central London rental market is still not in full-blown recovery mode,’ said Tom Bill, head of London residential research. ‘Though the number of new prospective tenants and viewings rose in October compared to the same month last year, the number of tenancies started is likely to end the month down, which reflects the hesitant nature of the recovery,’ he added. He pointed out that the positive IMF forecast should be balanced against data from accountant Ernst & Young that showed the number of profit warnings issued by UK companies between July and September was the highest in the period for six years. ‘In a further move that may dampen demand in the short term, mortgage lenders have cut rates as the likelihood of an imminent interest rate rise recedes. Lenders are also attempting to bolster their loan books after a slower period that followed the introduction of stricter lending criteria earlier this year,’ said Bill. ‘In positive news for investors, rental yields recorded their biggest monthly increase in more than three years, rising to 2.9% in October. Also, the spread between prime central London yields and the so-called risk free rate of a 10 year government bond has widened notably in recent months,’ he added. Continue reading →

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