The turnaround in the London market followed a steady fall in the number of homes available to rent in the capital, which has been driven by a drop in the number of landlords buying since the 3 per cent hike in stamp duty on additional properties was introduced in April 2016.
July saw the proportion of London homes bought by a landlord fall to just 10.5 per cent - the lowest level since August 2010.
Meanwhile, the number of would-be tenants in the capital was virtually unchanged on last year, meaning the same number of people were chasing fewer homes.
Growth in the London market contributed to a doubling of the annual growth rate across Great Britain from 1.1 per cent in June to 2.2 per cent in July.
Rental growth across other parts of the south also picked up, with the South West, East of England and Greater London among the four fastest-growing regions.
Outside these areas, Scotland saw the fastest rental growth (3 per cent).
Across Great Britain, the number of homes available to rent grew by 4 per cent year-on-year, but the rate of growth slowed in each of the last 10 months.
In London (-18 per cent), the East of England (-6 per cent) and the South East (-5 per cent) there were fewer homes on the market than last July.
In April 2016, when the stamp duty rise was introduced, the number of homes on the market in Great Britain was 14 per cent higher than in the previous year.
Johnny Morris, research director at Countrywide, said: “The rush to beat higher stamp duty rates in April 2016 caused a spike in the number of homes to rent, but that has now worked its way through the market.
“The stock of homes to rent is now falling in the more expensive parts of the country because higher tax rates have dissuaded large numbers of landlords from buying. Ultimately this means fewer homes on the market and higher rents.”
Liz Syms, chief executive at London-based Connect Mortgages, commented: “The professional landlords that are buying in London probably have not stopped. The market that seems to have been affected by the stamp duty is the secondary home market.
“If you have got someone who is living in a residential dwelling and decide to move, if they keep their existing property and let it out they will then pay stamp duty on the new property – even though it will be residential.