Tenant demand remains high across much of the UK rental sector, but improving supply levels means a more balanced and sustainable market.
While the supply and demand imbalance remains in place in the UK rental sector, continuing to push up rents which have increased by 24% over the past three years, there are signs of greater stability, according to Zoopla’s latest Rental Market Report.
With an average of 12 prospective tenants for every rental home per agent, there is still plenty of competition in the market, meaning landlords who own and invest in property in areas of high demand are receiving plenty of viewing requests and offers on their properties.
According to Zoopla, the average letting agent now has 13 properties available to rent. Although this remains 22% below the pre-pandemic average, it is up from a low of 10 homes per agent since 2023, indicating an easing of pressure over the past couple of years.
The report also revealed the rental prices for new lets in the UK rental sector has increased by 3% over the past year, which is at a much more sustainable level than the 7.4% annual rise seen a year ago.
Annually, renters are now paying an average of £15,400 per year, with the average monthly rent rising to £1,284.
Cheaper locations seeing steeper rises
While affordability remains an issue for tenants in the UK rental market, average earnings are rising at a faster pace (6% annually) than rent increases, meaning a level of respite for some renters.
When focusing on specific locations, there are some major differences in the rental markets, and this is somewhat mirrored in the sales market – more affordable areas are seeing the fastest growth, while more expensive locations have slowed the most.
In Newcastle, for example, rents have increased by 6.2% over the past year, demonstrating that demand continues to significantly outpace supply there. Hull, Liverpool and Cardiff are also at the top of the list for rental growth over the past year.
However, Nottingham has recorded a fall of -1.2% in rents annually, indicating that a boost of rental supply in the city has decreased competition in the market, pushing rents down. Leeds, Brighton and London have also experienced below average rental market growth.
What could impact UK rental market?
While strategic property investors continue to secure strong returns from some of the UK’s best performing locations, others have held back from expanding their portfolios while waiting to see the impact of some upcoming regulatory changes.
This includes the Renters’ Rights Bill, which could come into force later this year, which aims to create a fairer market for tenants (and to some extent landlords, with promised reforms to the court process for evictions).
Energy efficiency has also once again come under the spotlight in the UK rental market, with the government once again consulting on increasing minimum energy performance certificate (EPC) ratings in rental homes. At this point, it seems likely this could lead to a minimum EPC rating of C across the UK rental sector, meaning many landlords will be reassessing their portfolios.
The report notes: “We expect demand for rented homes to continue to exceed available supply in 2025, but to a lesser extent than we’ve seen in the recent past. The overall stock of rented homes is unlikely to increase in size in the coming years due to policy changes impacting profit margins and operating complexities for landlords.”
It adds: “We expect rents to increase by 3-4% over 2025 as slower growth in large cities is offset by faster growth in more affordable markets. Minimising the negative impacts of policy change on supply is essential to help most renters, who are on low to middle incomes.”
If you’re a property investor looking for lucrative buy-to-let opportunities in some of the UK’s best-performing cities, get in touch with BuyAssociation today.
