Lettings sector feeling the pressure on both the supply and demand sides
Market activity in the UK housing market remained muted at the end of 2025, but forward-looking indicators – particularly for sales – turned noticeably more positive in December, according to the latest RICS UK Residential Market Survey.
At the same time, the lettings sector is showing clear signs of strain on both the demand and supply side, with rents expected to edge higher as landlords and tenants adjust to the incoming Renters’ Rights Act and a shifting economic backdrop.
Sales: subdued end to 2025, but optimism building for 2026
The RICS survey shows buyer demand and agreed sales both still in negative territory, underlining that the sales market has been operating at a subdued level for some time.
New buyer enquiries came in at a net balance of -24% in December, a sixth consecutive negative reading, albeit slightly less downbeat than November’s -30%. Agreed sales followed a similar pattern at -19%, compared with -22% previously, still signalling contraction but with the pace of decline easing.
More encouragingly for brokers and lenders, sentiment about future sales has improved sharply, with three‑month sales expectations rising to a net balance of +22%, the strongest reading since October 2024, while twelve‑month sales expectations climbed to +34%, up from +15%, marking the best level since late 2024.
Survey respondents pointed to expectations of further monetary policy easing and the removal of Budget-related uncertainty as key supports for this improved outlook.
On pricing, the headline house price balance remained at -14% in December – indicating modest national price declines, but with signs of stabilisation compared with the recent trough of -19% in October. London (-42%) and the South East (-32%) are still seeing more pronounced price falls, while Scotland and Northern Ireland continue to record rising prices.
Lettings: ‘accidental’ landlords leaving, professionals worried about possession
It is the lettings market, however, where structural tensions are becoming particularly acute.
Tenant demand slipped further into negative territory in December, with the net balance falling to -27% from -22%. Although the lettings data is not seasonally adjusted, and December is typically quieter, this is still the weakest reading since the early stages of the pandemic and points to a marked loss of momentum.
At the same time, new landlord instructions remain deeply negative at -39%, underlining the persistence of supply constraints.
Jeremy Leaf, north London estate agent and former RICS residential chairman, told Mortgage Introducer that while some landlords are exiting, the bigger concern for those staying put is how the Renters’ Rights Act will play out in practice.
“Although ‘accidental’ and ‘amateur’ landlords in particular are leaving the sector, many longer-term ‘professionals’ are hanging in at least for the time being,” he said. “The worry for the latter group is the time to obtain possession could prove even more protracted in the event of landlords letting their property to difficult tenants once the Renters' Rights Act comes into force in May.”
Leaf fears court bottlenecks will worsen rather than improve:
“Excuse my cynicism but those court eviction hearings will probably take longer to arrange bearing in mind the considerable financial savings that will be made by local – or ultimately – central government if those tricky tenants, who are also probably not paying rent, remain the responsibility of private landlords.”
Evictions reality: most tenancies end for owner-occupation, not arrears
Contrary to some narratives, Leaf said arrears and anti-social behaviour are not the main drivers behind most possessions in his experience.
“On the ground, we have found the overwhelming majority of tenancies are ended when landlords seek possession for their own use, or that of a family member, rather than because of rent arrears or anti-social behaviour,” he said.
He also warned that some landlords contemplating a sale may think twice once they understand the practical constraints within the new regime.
“In any event, landlords tempted to sell may return to the fold when they realise that property cannot be re-marketed or re-let for 12 months after using specific eviction grounds under the new legislation to avoid sham practices,” Leaf noted.
For brokers and lenders active in the buy-to-let space, these dynamics could introduce more short‑term churn in landlord strategies as investors weigh exit versus hold decisions against a backdrop of legislative change and shifting rental yields.
Supply, recruitment and affordability: the squeeze from all sides
Leaf highlighted another structural challenge beneath the headline RICS figures: the failure to attract new entrants into the landlord sector in some locations.
“Another factor accompanying the drop in supply concerns is the failure to attract new landlord recruits in certain areas, which has supported rents,” he said.
At the same time, tenants’ ability to absorb higher rents is being tested, particularly as mortgage rates have begun to fall and lending criteria have eased slightly.
“On the other hand, affordability issues are resulting in tenants resisting higher rents while at the same time demand has been weakened by lower mortgage rates and more relaxed lending criteria resulting in aspiring first-time buyers not renewing tenancies,” Leaf explained.
This two‑way pressure – constrained supply, but a ceiling on what tenants can pay – is likely to shape landlord pricing decisions through the first half of 2026.
Outlook: rents to see ‘gentle’ rises as market adjusts to ‘new normal’
Despite the softer tenant demand readings, the RICS survey still points to a further upward drift in rents, with a net balance of +19% of respondents expecting rents to edge higher over the near term, up from +6% previously, and contributors projecting around 3% rental growth over the next 12 months.
Leaf believes that, in practice, the imbalance between demand and supply will remain the dominant force – particularly in major urban centres.
“The net result of all of the above is that demand will inevitably continue outweigh supply in my view – especially in larger cities like London offering better value – as the market stands at present,” he said.
“We are therefore likely to see a gentle increase in rents over the next few months at least as landlords and tenants try to come to terms with the ‘new normal’ – but watch this space.”
