Rental market softens quicker than expected, but brokers remain pragmatic
A forecast for rental growth in the UK has been downgraded, from 4.5% to 1.0%, reflecting a faster-than-expected market slowdown.
Rents on newly let properties rose 0.4% year-on-year across in June - the weakest growth since August 2020 - with declines recorded in London (-2.5%), Wales (-0.9%) and Scotland (-0.5%), according to the data from Hamptons, a leading residential estate agent and property services company.
Tenant demand has weakened, down 11% in H1 2025 compared to H1 2024, and 20% below 2019 levels, as falling mortgage rates have helped renters buy their own homes, it reports.
Despite the short-term cooling, structural supply shortages and upcoming regulatory changes, including the Renters' Rights Bill and EPC requirements, are expected to keep upward pressure on rents in the medium term. However, a weaker labour market outlook is expected to reduce growth by 0.5 percentage points each year. This means Hamptons now expects rents to rise 3.5% in the year to December 2026 and 3.0% in 2027.
"The rental market softened more quickly than we anticipated towards the end of last year,” commented Aneisha Beveridge (pictured left), head of Research at Hamptons. “What initially appeared to be a London-centric slowdown has now spread across the country, with rents declining in multiple regions and growth easing elsewhere. A combination of falling mortgage rates and a weaker labour market has shifted the dynamics - more affluent renters are becoming first-time buyers, while the economic slowdown is limiting what others can afford.
"That said, this isn’t the end of the rental growth story. The structural shortage of rental homes remains unresolved, and upcoming regulatory changes, such as the Renters' Rights Bill and new EPC requirements, are likely to constrain supply further and add to landlords’ costs. A slowdown in build-to-rent development this year is also expected to result in fewer new rental homes entering the market in the coming years. These pressures will continue to underpin rental growth over the medium term, even as the market recalibrates in the short-term."
Adviser Katrina Horstead (pictured second from left), co-fpunder and director of brokerage Versed, support a number of landlord clients, particularly those building portfolios as part of a broader financial strategy. The latest data doesn’t come as a huge surprise to her. “After several years of sharp rental growth and stretched affordability, some cooling was to be expected, especially with more renters making the jump to homeownership thanks to falling mortgage rates,” she said. “For our landlord clients, this shift reinforces the need to think long-term. The structural undersupply of rental homes, coupled with ongoing regulatory changes, will continue to shape the market. The short-term dip in growth shouldn’t necessarily be seen as a reason to exit, but rather an opportunity to reassess portfolio quality, financing arrangements, and compliance with upcoming legislation, especially EPC and Renters’ Reform measures.”
She added: “Confidence in the BTL market remains, but it’s selective. We’re advising clients to review their yields carefully, stress test for rising costs, and where possible, refinance to take advantage of the improving rate environment. A strong focus on property quality, tenant experience, and efficiency will be key in this next phase of the cycle.”
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Smaller landlords exit the market
Serious investors are still buying and growing their portfolios, according to mortgage adviser Michelle Lawson (pictured second from right), director of Lawson Financial, but smaller landlords are the ones that are exiting the market due to all the constraints being placed on them. “This is all a simple balance of supply and demand so, due to less supply, there will be increased demand and rents will increase further as landlords have to offset some of the burdensome costs,” Lawson commented. “With upcoming changes to the EPC regulations and renters rights, this will just exacerbate this situation further. First-time buyers aren’t snapping up properties although there are lots of buying options available to them spanning all kinds of genres and situations. I have a lot of confidence in the buy-to-let market as there will always be a place for it but just for not so many. Landlords are looking at different ways of investing and diversifying now so it will be interesting over the coming years to see how things evolve.”
Mortgage broker Hannie Mason (pictured right), director of Mortgages with Hannie, is a buy-to-let investor herself, and shares that her business oversees lots of BTL cases. She believes the market is definitely shifting. “I don’t think this is a sign of collapse, more a reset after years of intense pressure,” Mason said. “While the short-term rental growth forecast has dipped, landlords who take a long term view still have plenty of reason to feel confident. Demand has definitely cooled slightly, but structural undersupply, ongoing affordability issues for first time buyers, and regulatory changes will continue to support rental demand over the medium term.
“For my BTL clients, this is a moment to take stock, not panic. I’m advising landlords to focus less on short-term rental increases and more on long term sustainability, things like energy efficiency, tenant retention, and cash flow planning. The days of relying solely on capital appreciation or aggressive rent hikes are behind us, so it’s about running a professional, well managed portfolio. Ultimately, confidence in BTL shouldn’t just come from market forecasts, it should come from having a clear strategy. For some, that might mean reviewing their existing portfolio and improving what they’ve got. For others, it could be an opportunity to purchase where yields still stack up and tenant demand remains strong. It’s not the market for opportunists, but for thoughtful, well advised investors, BTL can still be a smart long term play.” She added: “I am still building my portfolio, and I would never advise on anything I wouldn’t do myself.”
