Rental Inflation Continues to Cool – But Remains Above Pre-Pandemic Norms
After several years of intense rental inflation, the UK market is beginning to stabilise according to rental market data. In March 2025, the average rental inflation rate had eased to 4.2%, continuing a three-year downward trend from 8.5% in 2022. This deceleration suggests that the market is starting to correct after the sharp spikes experienced during the aftermath of the COVID-19 pandemic and the broader cost-of-living crisis.
Key drivers behind this slowdown:
- Tenant pushback on rent increases due to affordability limits.
- A slight rebalancing of supply and demand in some areas.
- Stabilisation in wage growth and inflation, giving landlords fewer incentives (or justification) to hike rents.
However, it’s important to note that a 4.2% rise is still well above the historic average (typically 2–3%), and many renters continue to face significant financial pressure, especially in high-demand urban areas
Rental Demand Levels Off – But Remains Exceptionally High
The level of demand for rental properties remains significantly elevated, even as the pace of growth slows. After peaking in 2024, the rental demand index now sits at 195 (2022 baseline = 100), just slightly below last year’s high of 200.
What’s driving continued high demand?
- High mortgage rates continue to keep many would-be buyers in the rental market.
- An increase in young professionals and families opting to rent longer-term due to affordability challenges and lifestyle preferences.
- Chronic housing undersupply, especially in major cities, has limited tenant mobility, meaning more renters are competing for fewer properties.
However, the slight drop in demand compared to 2024 suggests some households are choosing to stay put, consolidate households, or exit expensive areas to find better value further afield.
Supply Shortfalls Worsen – Approvals Continue to Decline
One of the most pressing challenges facing the UK rental market is the persistent undersupply of homes. The number of new housing units granted planning permission in Q2 2024 fell to 38,000, down from 40,000 in 2023 and 50,000 in 2022.
This is a worrying trend for several reasons:
- The long-term pipeline of new homes is shrinking, meaning future rental stock will remain constrained.
- Build-to-rent schemes, while growing in number, are still not sufficient to offset declines in private landlord supply.
Many smaller landlords have exited the market in recent years due to increased regulation, tax pressures, and rising mortgage costs—further squeezing available rental supply.
Forecasted Rent Growth Continues to Moderate
Market analysts now expect average rents to rise by around 3.2% in 2025, a continuation of the downward trend in rental growth forecasts. This follows a forecast of 3.5% in 2024 and 4.0% in 2023.
This moderation is partly due to:
- Affordability ceilings being reached in many parts of the country.
- A slightly more competitive rental market in some regions as demand cools.
- Increased government and media attention on the cost of renting, which may be discouraging steep hikes.
That said, the slow pace of new housing delivery means these forecasts could easily shift upwards again if demand picks up or interest rates stay higher for longer, keeping renters from transitioning into home ownership.
Market Outlook: Resilient but Unbalanced
Overall, the UK rental market remains resilient but continues to suffer from deep structural imbalances:
- Strong underlying demand with little sign of a long-term decline.
- A shrinking private rental sector as landlords exit the market.
- An undersupplied planning system, leading to longer-term shortages in rental stock.
Without targeted policy intervention—particularly around planning reform, tenant protections, and build-to-rent incentives—many of the pressures seen today are likely to persist well into 2026 and beyond.
