Zoopla has doubled its forecast for UK rental growth this year as a “perfect storm” of falling supply, low landlord investment and higher mortgage costs exert upward pressure on rents.
Its latest Rental Market Report forecasts that rents for new lets will be 4% to 5% higher by the end of 2026, compared to the 2.5% growth it was predicting at the end of last year.
It marks a significant change in the outlook for the rental market, with annual rental growth already accelerating from a recent low of 1.6% in February to 2.6% in July and the average UK rent hitting £1,340 a month.
Imbalance in supply and demand
The rises are being driven by the growing imbalance between the number of people looking for somewhere to rent and the number of available homes.
On the supply side, the number of homes to rent began falling in May, bringing an end to a three-year recovery which had helped slow rent rises during 2024 and 2025.
There are now 3% fewer rental homes available than a year ago, and the number of new ones coming onto the market during August was down 6%.
Yorkshire and the Humber saw the biggest fall, with available rental homes down 12% over twelve months.
Although supply levels started coming down in the same month the first phase of the Renters’ Rights Act came into force, Zoopla argues that the shortage is not primarily being driven by the legislation.
It points out that in Scotland, where the Renters’ Rights Act does not apply, rental supply is experiencing similar falls and rents are rising. And Dumfries had the biggest increase in the UK at 11.3%.
Zoopla instead blames persistently low levels of new investment by landlords for the shortage of rental homes.
On the demand side, higher mortgage rates are making it harder for those in the rental sector to get their feet on the property ladder, with the average five-year fixed mortgage with a 5% deposit now at 6%.
Increasing competition
It has led to increasing competition for the rental homes that are available, with letting agents now receiving an average of 5.3 enquiries for every property. That is 6% more than a year ago and the highest level for almost two years.
Richard Donnell, Executive Director at Zoopla, says: “Higher mortgage rates are not just impacting the sales market; they are keeping more would-be first-time buyers in rented homes for longer, reducing available supply just as the seasonal upturn in demand gets into full swing.
“This is pushing rents higher again, mainly in regions where the availability of homes for rent has declined the most, although affordability remains an important constraint on how far rents can rise.”
Zoopla’s data shows, in areas where the average rent is roughly half the national average (£750 a month), rents are rising at more than twice the national rate (5.4% compared to 2.6%). And in low cost locations such as Carlisle, rental growth was as high as 8.8% over the past twelve months.
Looking forward
Donnell notes that the overall number of homes in the private rented sector has changed little over the past decade. He argues: “Growing the number of homes for rent through increased investment is the most sustainable route to boosting choice for renters and ensuring stability in rent levels over the long run.”
