Rental growth slows to four-year low, but demand remains high

Rents are increasing at the slowest pace in four years as the gap between supply and demand begins to narrow. While this marks a welcome cooling of the market, competition for rental homes remains strong.

Key Insights

•           The four-year surge in rental prices has come to an end, driven by a softening in demand and rising affordability pressures.

•           Over the last three years, rental costs have climbed by 21%, compared to just a 4% increase in house prices.

•           In the 12 months to April 2025, average UK rents rose by 2.8%, less than half the 6.4% growth seen the previous year and the slowest rate since July 2021.

•           Rent increases vary significantly across regions, from just 1.1% in Yorkshire and the Humber to 5.3% in the North East.

•           Overall, rents are expected to rise by between 3% and 4% during 2025.

•           High rents and limited stock remain a challenge for lower and middle income renters, underscoring the need for more affordable housing options.

Headline Figures

As of April 2025, the average rent for a new LET in the UK stands at £1,287, up from £1,279 in January and £1,278 in October 2024. Over the past 12 months, rents have increased by 2.8%, compared to 2.7% annual growth in January and 3.3% in October. This marks the lowest annual growth rate in four years.

The Rental Boom Has Slowed

The post-pandemic rental surge has finally subsided. Average rents for new tenancies rose just 2.8% in the year to April 2025, a sharp drop from 6.4% growth recorded a year earlier. This is the slowest rate of increase since July 2021 and reflects rising affordability constraints more than any significant growth in rental stock. The current average rent is £1,287—£35 higher than 12 months ago.

Demand Cools, But Competition Persists

Tenant demand has fallen by 16% compared to last year, yet remains over 60% above pre-pandemic levels. The decline in net migration, a 50% drop reported by the ONS for 2024 has contributed to this trend, although migration levels are still above the long-term average.

Another key factor is improved access to mortgages, particularly for first-time buyers who were previously reliant on renting. Changes in how banks assess affordability are helping renters on higher incomes move into homeownership, easing pressure on the upper end of the rental market.

Supply Improves Slightly, But Remains Tight

Rental supply has increased modestly, with 17% more homes available compared to this time last year. This is due in part to properties taking longer to let and a small rise in landlord purchases as borrowing costs ease. However, the number of available rental homes remains 20% below pre-pandemic levels.

This means that, despite a slowdown in rent growth, competition for rental properties remains fierce, particularly for households on lower incomes who are priced out of the ownership market.

Rental Growth Cools After 2022–2023 Boom

Rental growth has now returned to pre-pandemic levels following the sharp inflation seen in 2022 and 2023. During that period, cities led the rental price surge, particularly London and other major regional centres. This has since tapered off, partly due to the expansion of 'Build to Rent' schemes and improved mortgage access that is helping more people move out of the rental sector.

Rents Outpacing House Prices

While both sales and rental markets have seen long-term growth, recent years have shown a divergence. Over the past three years, average UK rents rose by 21%, while house prices climbed just 4%.

Higher mortgage rates, which began rising in 2022, reduced purchasing power and pushed many would-be buyers into the rental market. This was compounded by high levels of inward migration. As a result, the average monthly rent has gone up by £219 over three years, similar to the increase in average mortgage repayments.

The typical annual rent has increased by £2,650, from £12,800 to £15,450 since 2022.

Looking Ahead: Market Outlook for 2025

The rental market is forecast to see rent increases of between 3% and 4% through the rest of 2025. Growth is expected to be strongest in more affordable areas on the outskirts of large cities. In contrast, rent growth in higher-priced urban markets may slow further as wealthier renters transition into homeownership.

However, many lower and middle income renters, particularly those with limited savings remain locked out of the housing market and continue to face intense competition for rental properties. Without a significant boost in affordable rental housing supply, these pressures will likely persist.

Policymakers should focus on expanding access to affordable rental homes, to ensure greater choice and mobility for those most affected by current market conditions.