The UK rental market has experienced significant fluctuations in recent years, but recent data points to a cooling off in the pace of rent increases, amidst ongoing challenges related to supply and demand. Understanding the latest trends, challenges, and potential future developments is crucial for renters, landlords, and policymakers alike.
So, what story does the most recent home track report have to tell on the current landscape of the UK’s rental market?
Annual rent inflation at the lowest for 3.5 years
In the past few years, the continued level of rent inflation has been a major talking point in the UK, with prices rising sharply due to a variety of factors including high demand and a shortage of available rental properties. However, recent figure indicate that inflation is at its lowest point for 3.5 year, at least on new let properties, with rents having increased by a margin of 3% over the last 12 months compared to the 7.4% increase recorded a year ago.
This is encouraging news for renters, especially after years of soaring rental costs. It could also signal the beginning of a more sustainable rental market moving forward, particularly with the broader trends of proposed legislation being introduced within the rental sector.
Supply and demand
One contributing factor towards this reported slowdown in rental inflation can be attributed to the shifting supply and demand dynamics in the rental market. Homemarks rental market insights show that there are now 11% more homes for rent compared to statics from the same time last year. While on the surface this suggests a greater number of properties available to meet demand, the data also reports that there has been a decrease in demand by 17% within the same timeframe. This reduced gap between supply and demand may therefore suggest that fewer people are entering the rental market, potentially owing to the ongoing cost of living crisis, or due to changing preferences about where people live and work, particularly with the increase in hybrid working models in a post-pandemic UK.
However, despite this narrowing between the supply and demand, the UK rental market continues to face a shortage of available rental properties with data showing that there are still 12 renters competing for each available home. Although this is down by 42% compared to levels seen during the peak rental market years of 2022-2024, the overall supply of rental homes still remains far below the level needed to meet demand.
Is regulation getting in the way?
This issue of a shortage of rental properties entering the market may only be further compounded by proposed rental reforms and policy changes that could further limit investment in the rental market.
In recent years there has been a significant push in legislation impacting rental properties, from ground rent charges, to EPC ratings, to restrictions on eviction process, many landlords are becoming increasingly concerned about the impact of new regulations. These changes could lead to fewer landlords entering the market or even exiting the sector entirely, exacerbating the supply problem and potentially driving rents higher in the future.
What remains to be true is that there is a critical need for more homes in the UK, and without substantial investment in building new homes or easing some regulatory constraints, the housing market will continue to come up against challenges in meeting future demand.
Offering his thoughts on current market is SDL Surveying’s Senior Regional Surveyor for London, Adam Santos:
“Following the post covid period and the dramatic rise in rents, it is understandable that the broader public wanted to see action taken by the government and that is now coming through in the form of the Renters Reform Bill. However, to simplify the narrative of rising rents as being a result of landlord greed is disingenuous and doesn’t account for the change in the balance of supply and demand but also rising costs and taxation for landlords.
With further legislation on the horizon in the form of enhanced minimum energy efficiency requirements, it is increasingly challenging for smaller landlords to remain in the market. Whilst some might perceive this as a positive as they consider it releases stock to the market for potential buyers, the reality is that it serves to limit the options for those who are unable to buy and need to rent.
There are groups who are calling for rental controls; similar to what can be found in parts of Europe. Whilst this sounds appealing to those in rental property, the challenge is that capping rents carries the risk that rents fall out of sync with property values. This creates a scenario where for an investor, the return on the cash invested in a rental property is no-longer viable, particularly given the various risks property investment carry above other forms of investment or even placing cash in higher interest savings accounts. This is particularly problematic for those who have their rental property in mortgage where the annual rent may no-longer cover the mortgage interest, tax and maintenance.
Hopefully the government will take a measured view on this issue and recognise the need for stability in this market. With the minimum energy efficiency standards there is arguably scope to provide tax incentives to help fund the required improvements which would go some way to improving the quality of rental stock and the energy efficiency of properties more generally.”
A changing landscape for the UK rental market
The UK rental market is at a turning point. Although there are indications of rent inflation slowing and a slight improvement in the supply-demand balance, major challenges still persist. As the market adapts to new conditions, renters, landlords, and policymakers will need to carefully manage these complexities.
While the market is unlikely to return to its pre-pandemic state in the near future, a combination of increased supply, fairer rental reforms, and affordability-supporting policies could offer hope for a more balanced and sustainable rental market moving forward.
Referenced: Hometrack UK Rental Market Index, March 2025