After several years of intense rental inflation, fierce competition and affordability constraints, 2025 is shaping up to be a pivot point – positive news for tenants across the UK.
Yet, embedded market challenges including a sclerotic supply-side housing system continue to be a pain point for the UK rental market.
Zoopla’s Rental Market Report (March 2025) reveals that annual rental inflation has slowed to 3.0%, the lowest point in the last 3.5 years. This marks a seismic drop of over 50% from an inflation rate of 7.3% this time last year.
Inflation shows substantial regional variation, however. In London, typically the epicentre of rental inflation, rents are set to grow at 1.1% with average rents standing at £2,166. Yet, in the North West rents grow at 5.0% with average rents less than half of London at £915.
At a city level, rental inflation can range from -1.2% in Nottingham to 6.2% in Newcastle. In Nottingham, growth in rental housing has positively impacted its rental price growth, demonstrating that supply-side reform is able to temper inflation.
Bleakly, one of the primary factors slowing rental inflation seems to be an affordability ceiling preventing renters from absorbing further hikes. With the average annualised cost of rent reaching £15,400 – an increase of £3,000 over three years – it may be that renters simply cannot afford further rent increases.
If it is true that inflation is being stymied by reaching the upper limits of the UK rental market’s price elasticity, then wages will need to catch up before further significant price hikes can take place.
A decline in rental demand across all regions of the UK has also taken place. The number of rental homes available on the market has increased by 11% and overall rental demand has dropped 17%, relative to a year ago.
This demand-side alleviation, the report finds, is associated with both a reduction in net migration and a growth in first-time buyers, most of whom originate from the rental market.
But renting in the UK can still be an uphill battle. The report calculates that on average there are 12 renters vying for each available property. Moreover, the average letting agent is found to manage just 13 rental properties, 22% fewer than before the pandemic.
UK rental housing stock still remains stubbornly below historical norms, and it is unlikely that this is set to grow in the coming years.
The new Labour government’s raft of housing regulatory bills including the anticipated Renters’ Rights Bill is set to redress the long-standing power imbalance between landlord and tenants. But in doing so, landlords will face a suite of fresh obligations and costs making landlordism less attractive and diluting overall rental stock.
More positively, the dampening of demand is certainly a welcome change for renters who currently face substantial competition over a limited housing stock. If the government is able to reform the UK’s sclerotic supply-side systems, then the outlook for renters will be far more buoyant.
Zoopla’s report forecasts a 3-4% rate of rental inflation over the course of 2025. Whilst high by historical standards, this is far more tempered relative to the last few years. Rents are set to grow faster in more affordable cities, but supply-side reform can cool rent inflation as has been the case in Nottingham and Leeds.
Ultimately, the path to a healthier rental market lies in increasing supply. Without greater investment in rental housing and policies that support landlords as well as tenants, the market risks remaining stuck in a cycle of limited availability, high demand, and affordability pressures.
As Executive Director Richard Donnell notes, “Growing supply is essential to support those on lower incomes, and policy reforms for the rental market need to minimise the impact on supply.” Renters may be catching a slight break in 2025, but without strategic action, lasting stability remains a distant goal.