Rental Market Outlook

After several years of exceptionally strong rental growth across the UK, the market is beginning to cool. The past three years have seen some of the highest rental increases on record, driven by a combination of supply shortages, a rebound in demand post-COVID, and inflationary pressure. However, recent data points to a clear turning point: the rate of rental growth on new market lets is slowing-and in some areas, that slowdown is happening faster than others.

In London, for example, the annual rate of rental growth for flats has decelerated sharply to 1.9%, down from 5.4% a year ago. This is a significant shift, particularly in a city that has long led the UK in terms of rental inflation. Across the country, annual growth currently stands at 5.9%, compared with 8.7% a year earlier. These figures indicate that the market is undergoing a period of rebalancing following the intense pressures of the last few years.

At the heart of this adjustment is affordability. The simple reality is that many tenants have reached, or are nearing, the limit of what they can afford to pay in rent. The affordability issue is not new, but it has become increasingly acute as rents have risen faster than wages. With inflation only recently beginning to ease and interest rates still elevated, disposable incomes have remained under pressure. In this environment, landlords are finding it more difficult to push rents higher without facing tenant resistance or prolonged void periods.

Encouragingly, there is tentative evidence that the worst of the affordability crunch may be behind us. The latest data from the ONS Affordability Tracker, which uses PriceHubble’s rental data, shows that tenants are now spending an average of 29.3% of their gross earnings on rent, down from a peak of 30.1% in September 2024. While this decline is modest, it suggests that wage growth is beginning to catch up with rental costs, providing some breathing room in household budgets.

Other market indicators also reflect a shift in momentum. According to the Royal Institution of Chartered Surveyors (RICS), demand for rental properties, while still robust, has returned to more typical levels. In parallel, landlord instructions-though still below pre-pandemic norms-are stabilising in several regions. The imbalance between supply and demand, which fuelled much of the recent growth, is showing signs of easing.

However, the picture is not uniform across the country. Urban markets that saw the fastest rises during the pandemic-era boom-such as Manchester, Leeds, Bristol, and parts of Inner London-are now experiencing the most pronounced slowdowns. These cities tend to be early movers in both upturns and downturns due to the volume of rental activity and the transient nature of their tenant bases. In contrast, smaller towns and suburban locations with more limited supply are still seeing moderate rent rises, particularly where family housing is in short supply and demand remains strong among long-term renters.

Looking ahead, most analysts agree that the market is entering a more stable and predictable phase. Forecasts from Dataloft by PriceHubble, based on consensus across industry experts and supported by RICS, project average annual rental growth of 3.2% over the next five years, through to 2029. This represents a return to long-term trend levels seen prior to the pandemic and suggests the market is now correcting rather than collapsing.

For landlords, this marks an important moment to reassess strategy. The days of double-digit annual growth may be behind us, but the fundamentals of the rental sector remain sound. Structural under-supply, demographic growth, and the growing number of households choosing to rent-either by preference or necessity-continue to underpin demand. However, to succeed in this new environment, landlords must offer properties that meet evolving tenant expectations, particularly around energy efficiency and maintenance standards.

The introduction of more stringent regulations, especially around Energy Performance Certificates (EPCs), will also require landlords to invest in their stock if they wish to remain competitive. With tenants becoming more discerning, and supply improving in some areas, landlords who neglect their properties may find themselves at a disadvantage.

At a policy level, the underlying issues that have driven long-term rental growth-namely a chronic lack of new housing-remain unresolved. Planning restrictions, limited land availability, and delays in housing delivery continue to constrain the development pipeline. Until these issues are addressed at scale, rental demand will likely remain resilient, even if growth slows in the short term.

While the UK rental market is no longer in the runaway growth phase of the past few years, it remains a fundamentally sound sector. Affordability constraints are doing their job in bringing inflation down to more sustainable levels. At the same time, improving wage growth and easing inflation are helping to stabilise the market. The next five years are likely to see steady, moderate rental growth-more in line with long-term trends and supported by solid underlying demand. For landlords, letting agents, and investors alike, the message is clear: this is not the end of the road, but rather the start of a new, more disciplined cycle.

Source: Dataloft by PriceHubble, RICS, Consensus Forecast across agents as at July 2025