We have downgraded our 2025 rental growth forecast from 4.5% to 1.0% across Great Britain, reflecting a faster-than-expected market slowdown. The rental market has softened more quickly than anticipated, with rents on newly let properties rising just 0.4% year-on-year across Great Britain in June - the weakest growth since August 2020.
This cooling trend is no longer confined to London, with rental declines now recorded in the capital (-2.5%), Wales (-0.9%) and Scotland (-0.5%). Even in the North of England, where rents had been rising fastest for most of the last 12 months, annual increases have slowed from 8.1% in June 2024 to just 1.8% in June 2025.
First-time buyers driving the shift
The primary driver behind this cooling rental market has been the transfer of demand from the rental sector to the sales market. As mortgage rates have fallen, homeownership has become more accessible, leading to strong first-time buyer activity. First-time buyers purchased a record 33% of homes sold across Great Britain in the first half of 2025.
This shift has resulted in 11% fewer tenants looking for homes across the country in the first half of 2025 compared to the same period in 2024, with tenant demand now 20% below 2019 levels. The number of tenants registering in lettings branches across Great Britain was down 17% on the same time last year and is now running 28% below 2019 levels.
For would-be first-time buyers with small deposits, falling mortgage rates have pushed the monthly cost of purchasing below the cost of renting. Anyone with a deposit of at least 10% is now likely to find themselves better off buying than renting. This has particularly affected tenant demand in more affluent areas, where tenants are most likely to buy.
Supply and demand rebalancing
While tenant demand has weakened, there were 8% more homes available to rent across Great Britain in the first half of 2025 than during the same period in 2024. This doesn't reflect increased landlord investment, but rather a slowdown in tenant demand, with properties taking longer to let. Additionally, tenants exiting the rental sector are not being replaced at the same pace. This has contributed to a greater pool of available rental homes.
Lower mortgage rates have also reduced, albeit not eliminated, the financial pressure on landlords. After several years of rapidly rising costs, many landlords who are now remortgaging are finding more favourable rates, diminishing the need to pass on higher costs to tenants.
Economic headwinds intensifying
Broader economic factors are also weighing on rental growth. The labour market has weakened more than expected, with data from HM Revenue & Customs showing that payroll employees fell by 178,000 over the last year, with job losses concentrated in hospitality and graduate roles, which traditionally have a high proportion of renters.
Unemployment is rising and is now expected to reach around 5% by Q4 2026, further dampening rental demand in both 2025 and beyond.
Additionally, earnings growth has cooled more than anticipated. Average earnings rose 5.0% in May, but the Bank of England expect this to slow to around 3% next year. With rents closely tied to wage growth, this economic slowdown is having a disproportionate impact on the rental market.
London leads the decline
London continues to experience the most significant decline in rents, with rents on newly let properties falling for the sixth consecutive month, down 2.5% year-on-year in June. This marked the biggest annual decline in the capital since May 2021. Consequently, the average rent of a newly let property in London (£2,288 pcm) is now back to May 2023 levels.
In Inner London, average rents have decreased to their lowest level since October 2022, down 3.8% year-on-year to £2,694 pcm. This is particularly notable as London has seen the second-largest increase in the share of homes bought by first-time buyers, with new homeowners making up half of all buyers in the capital in Q1 2025.
Rents also fell in Scotland and Wales last month. The average rent for a new let in Scotland decreased 0.5% year-on-year in June, the first annual decline since December 2019. Meanwhile, rents in Wales also fell 0.9% year-on-year.
Renewal rents still rising, but at a slower pace
While rents on renewed tenancies continue to rise faster than new lets, the pace of growth for renewals has nearly halved to 3.9% year-on-year in June, down from 7.6% in June 2024. This has narrowed the gap between new lets and renewals to its smallest point since summer 2021.
The average rent on a renewed tenancy in Great Britain (£1,283 pcm) now costs 6% or £86 per month less than a new let, compared to a 12% or £151 per month gap in June 2023. This convergence reflects how landlords have been passing higher costs onto tenants and keeping renewal rents closer to market rates.
Long-term outlook
Despite the short-term downgrade, longer-term factors are expected to continue supporting rental growth from 2026 onwards. The structural supply shortage, combined with relatively high mortgage rates, will prove inflationary in the medium term. For example, there were 34% fewer homes available to rent across Great Britain in the first half of 2025 than in the first half of 2019.
The implementation of the Renters' Rights Bill and upcoming EPC requirements are also likely to put upward pressure on rents. However, in light of the weaker labour market outlook, we are downgrading our rental growth forecasts for 2026 and 2027 by 0.5% and 1.0% each year respectively. Rents across Great Britain are now expected to rise by 3.5% in Q4 2026 and 3.0% in Q4 2027, still running slightly ahead of projected inflation and earnings growth.
Despite the downgrade in our forecasts, rents are likely to rise by 18% between the end of 2022 and the end of 2027. This will cost the average tenant in Great Britain an extra £2,650 each year.
