Structural Pressure Continues: Realignment in the UK Rental Market
As we approach mid-2025, the UK rental market continues to moderate but faces enduring structural pressures. While inflation in rents has softened slightly, affordability remains a key challenge, demand remains robust, and supply issues persistently deepen.
In May 2025, actual rental inflation declined to 3.8%, continuing its gradual descent from April’s 4.0%. Forecasted rental growth for the year has been further revised downward to 2.9%, indicating a cautiously optimistic outlook regarding future affordability.
Contributing factors to reduced inflation:
- Tenants’ affordability ceilings limiting further rent hikes.
- Steadying economic conditions, including moderated wage growth and inflation.
Selective market rebalancing, particularly outside major urban hubs.
Rental Inflation: Gradual Relief but Still Above Historical Norms
Demand Dynamics: Slightly Reduced Yet Persistently High
The UK Rental Demand Index decreased modestly to 190 (base year 2022 = 100), down from a peak of 200 in 2024. Despite this minor easing, the rental market remains highly competitive.
Underlying causes of sustained demand:
- Elevated mortgage costs, preventing renters from transitioning into homeownership.
- Increasing preference for renting, driven by economic and lifestyle factors among young professionals and families.
Persistent housing undersupply, restricting mobility and maintaining high competition for available rental units.
Housing Supply Crisis Deepens
May saw planning approvals fall further, reaching only 35,000 units, marking a continued downward trend from previous years. This worrying decline highlights the challenges faced by the housing sector.
Key factors behind declining approvals:
- Regulatory and taxation pressures pushing landlords out of the market.
- Limited scope and scale of build-to-rent initiatives.
Systemic inefficiencies and delays within the planning system.
Combined View: Key Market Pressures at a Glance
This multi-axis chart provides a clear overview of all the trends shaping the rental market between 2022 and 2025
Outlook: Market Stability Under Strain
Although the rental market is showing signs of stabilization, fundamental issues remain unresolved. Without targeted policy interventions, including comprehensive planning reforms, greater support for the build-to-rent sector, and strategies to encourage private landlord retention, these structural challenges are likely to persist into 2026 and beyond.
