The housing market in the UK has seen a sustained increase in prices in recent years, in common with many international markets. The UK market has however witnessed distinct regional trends in price dynamics. This has been a common factor in the UK market as noted in the many papers that have examined the ripple effect and convergence across regional markets (e.g. Meen, 1999, 2005 and Cook, 2003). The differing dynamics of the London market has been a key element in many of these studies and it is this market that the current paper explicitly examines. In contrast to many international markets few studies have examined the rental market in the UK and its relationship to trends in residential prices. This paper builds upon the existing literature to have examined the residential market within an asset pricing framework (e.g. Ayuso, 2005, Carreras-i-Solanas et al., 2004, Chan et al., 2001, Clayton, 1996, Mankiw & Weil, 1989, Poterba, 1984, 1991, Topel & Rosen, 1988). The paper explicitly examines the London market for two reasons. Firstly, the market has quite distinct characteristics in comparison to the rest of the UK. Secondly, the capital has the largest rental market in a country with a relatively high level of owner occupation and is therefore best placed for an analysis of the price-rent relationship.