Rent increases now lag CPI as supply rises and demand eases
The rental market is experiencing its slowest pace of growth in several years, with new data showing a marked shift in conditions for both tenants and landlords.
According to separate reports from Zoopla and Hamptons, annual rental growth has decelerated to its lowest rate since 2020, with the average rent now standing at £1,300 per month—an increase of just £30 over the past year.
Letting agents are also seeing a decline in tenant enquiries, down by nearly a quarter compared to last year. This trend is attributed to a combination of factors, including tighter visa regulations that have reduced migration, more stable mortgage rates, and rising incomes that are enabling more renters to transition into homeownership.
Notably, changes to mortgage affordability assessments in early 2025 have increased first-time buyers’ borrowing capacity by 20%, resulting in a 30% rise in first-time buyer mortgages over the past year. As these buyers leave the rental sector, additional homes are returning to the market.
The supply of rental properties has grown by 19% over the last 12 months, with the average letting agent now managing 19 available homes, up from 14 in 2022. This increase is partly driven by a 36% rise in UK rents since 2020, which has encouraged more landlords to invest in buy-to-let properties. New loans for such purchases have risen by 60%. In regions such as the South West and East Midlands, rental supply has increased by 36% and 31% respectively, as some homeowners unable to sell have opted to let their properties instead.
Despite these improvements, London’s rental market remains comparatively tight. The capital has seen only a slight increase in rental stock, with landlords required to provide significantly larger deposits than in other regions. Additionally, London has the highest proportion of landlords looking to sell, accounting for nearly a third of all homes for sale in the city.
Affordability remains a significant concern. Over the past five years, average rents have risen by almost £80 per week, adding £4,100 annually to tenants’ costs. Many renters, particularly those with below-average incomes or reliant on housing benefit, are struggling to keep pace with these increases. While rental growth has slowed in most regions—ranging from less than 2% in London, Scotland, and Yorkshire and the Humber, to 4.6% in the North East—some cities, such as Bristol and Leeds, have seen rents fall slightly.
Nationally, the cost of renting has begun to rise more slowly than inflation. In August 2025, newly agreed rents across Great Britain fell by 0.4% year-on-year, the largest annual decline since the pandemic. This marks the ninth consecutive month where rental growth has lagged behind inflation, which stood at 3.8% in July. The Office for National Statistics notes that changes in private rents now contribute less to overall inflation, reversing the trend seen in recent years.
Over the past five years, rents have increased by 31%, outpacing the 24.9% rise in the Consumer Price Index. Had rents tracked inflation, the average rent would now be £1,308 per month, saving tenants nearly £1,000 annually.
Regionally, rents are now falling in four of the eleven regions, with London experiencing the steepest decline at 3.3% year-on-year. Inner London rents have dropped by 5.8% over the past year, standing £179 below their October 2024 peak.
The gap between the cost of renewing a tenancy and signing a new let remains significant, though it has narrowed since its peak in 2023. Renewals are currently £90 per month cheaper than new lets, with renewal costs rising by 4.3% in the year to August 2025. However, this difference is expected to decrease as affordability pressures continue to build.
Meanwhile, the number of unlet homes on the market has increased by 8% compared to last year, while tenant demand has softened, with 4% fewer renters beginning their search. Although rental stock remains below 2019 levels, the gap is closing.
“Rental market conditions are starting to normalise which will be very welcome news to renters,” said Richard Donnell (pictured top left), executive director at Zoopla. “Lower migration and better mortgage availability for first-time buyers are easing the scale of the competition for rented homes.
“There is also more choice for renters with more homes for rent as landlords start to buy homes once again and some owners who can’t find a buyer listing their homes for rent. The affordability of renting remains a key constraint on the pace of future rental inflation and we expect rents to be three per cent higher by the end of the year at an average of £1,320 a month.”
Aneisha Beveridge (pictured top right), head of research at Hamptons, echoed Donnell’s view, noting that “after several years of rapid rental growth, the tide is finally turning.”
“For the ninth month in a row, rents have risen more slowly than inflation—offering tenants a rare moment of financial respite,” she said. “While the monthly savings may seem modest, they mark a significant shift in the rental market’s role in driving inflation.
“Over the longer term, rents have consistently outpaced inflation, which means tenants today are paying more than they would have if rents had simply tracked CPI. For the most part, this has mirrored the rising cost pressures facing landlords. But this recent slowdown suggests the market is recalibrating. With affordability stretched and demand softening, landlords are having to adjust to attract tenants.
“Like wages, rents don’t often fall. In fact, there have only been six months over the last 14 years when rents have fallen nationally on an annual basis. And when they do, it’s usually in real terms, rather than absolute terms. What we’re seeing now is a real terms fall in rents – when inflation and wages outpace rental growth - which leaves tenants feeling better off. It’s a sign that the rental market is responding to wider economic pressures, and it could help ease the inflation headache for policymakers in the months ahead.”
For mortgage brokers, the slowdown in rental growth and increased supply signal more renters considering homeownership, especially as mortgage affordability improves. This creates opportunities to engage first-time buyers, but also means brokers must adapt to a market where affordability and competition for clients are key. Staying informed on shifting demand and lending criteria will be essential for maintaining business growth.
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