A new report by Chesterton Humberts has revealed that rents in London have risen by an average of 7.7% during 2011, causing increasing affordability issues previously only seen in the sales market.

According to the report, a buoyant year for the lettings market has seen rents in London reach record levels and the average price now stands at £875 per week. Canary Wharf recorded the strongest rental growth, with rents for one-bed flats increasing 25% in the past nine months, while Putney and Kensington also saw strong growth with prices for two-bedroom apartments increasing 12.5%. The most expensive place to rent is Knightsbridge and Belgravia, where average rents are £3,300 per week.

With price increases akin to those experienced by the sales market during the pre-2007 ‘boom’ years, many renters are now facing affordability issues similar to those faced by first-time buyers. This has prompted a rise in the number of flatshares across the capital and is increasingly causing renters to compromise on location, budget or the property itself.

Nick Barnes, Chesterton Humberts’ head of research, commented: “With people struggling to secure mortgages and the average age of the first time buyer now 38, we are definitely seeing the expansion of the rental market but it is clear that stock levels are failing to keep pace with the increased demand, especially in the prime locations. This is putting an upward pressure on rental prices and causing affordability issues across the capital”

Richard Davies, head of lettings at Chesterton Humberts’, added: “This has been an incredibly strong year for our lettings department, driven in part by the increased demand from forced renters or would-be buyers.”

Going forward into 2012, Chesterton Humberts is predicting that the flat housing market, low availability of quality stock and continued demand from renters will see another year of rental price increases. This situation is likely to be exacerbated in the short-term by the Olympic Games, as demand from visitors for temporary accommodation is expected to put further pressure on the already limited stock levels.

Against a back-drop of economic uncertainty in Europe and volatility in the equities market, the continued strength of the lettings market is attracting an increasing number of buy-to-let investors. Evidence of this can be seen from the latest figures from CML which show that the number of buy-to-let mortgages acquired increased by 16% in the third quarter of the year - the highest levels seen since 2008.

The report is available to download by clicking the link on the right.