Rental growth stalled in 2025, with valued dropping by 0.4%. The slowdown started in Central London, where the average fell by 2.5%. The trend spread outwards, with falls in London, the South East, Wales and the East Midlands. However, there West Midlands was an outlier, recording an annual rise of 2.0%.
Tenant demand, as measured by new property searches, declined by 11% over the year, and is now 28% below its pre-pandemic level.
THE REASONS FOR THE SLOWDOWN
Demand has weakened thanks to a range of factors. Lower interest rates have enabled more first-time buyers to secure mortgages. They accounted for one-third of home purchases in 2025 across Great Britain, and as many as 50% in London.
The decrease in the cost of borrowing has also benefited landlords who can now secure cheaper remortgaging deals. This has reduced the need to try to pass on higher repayments to tenants.
At the same time, the labour market has continued to weaken, limiting both how much rent tenants can afford as well as the number of first-time renters. Also, net migration has declined sharply as a result of tougher caps on dependent and student visas. About 90% of people arriving in the UK initially seek accommodation in the private rented sector.
THE OUTLOOK FOR 2026
It would be wrong to assume that rental growth will not return. There is a shortage of rental homes, and the implementation of the Renters' Rights Act in May 2026 is likely to further constrain supply over the years ahead.
"Lower interest rates have enabled more first-time buyers to secure mortgages"
Landlords costs are also set to rise. The amount of bureaucracy is increasing, and 'no-fault' evictions will be more expensive, take longer and be more difficult to secure. Rising construction costs and the higher cost of finance led to cut backs in build-to-rent development in 2025. This will lead to fewer such homes becoming available this year and future output in the sector could be jeopardised by declining rents in London.
It's important to note, however, that rents on renewed tenancies are continuing to go up by 4% or more. Landlords are seeking to narrow the gap between what sitting tenants pay and the rent that a property could achieve as a newly-let home. This differential is at its lowest since the summer of 2021.
THE LONGER-TERM OUTLOOK
The number of homes to let at the end of 2025 was still lower than at the same time in 2019. This persistent shortage in supply, combined with mortgage rates still at a relatively high level, will support rental growth in the longer term.
Landlords must cope with the implementation of the Renter’s Rights Act in 2026. The next challenge is the introduction of more stringent Energy Performance Certificate (EPC) requirements which are scheduled to take effect in 2028.
This legislation could necessitate costly upgrades, although it is close to certain that the launch of the new regulations will be delayed, since the calculation process for EPC ratings is being overhauled. The era of ultra-cheap mortgage rates is unlikely to return any time soon.
Attractively-priced deals will continue to be on offer in 2026, but financial markets are already pencilling in small rate hikes in 2027. This suggests a new, structurally-higher cost of borrowing for the decade ahead.
