According to Zoopla’s quarterly Rental Market Report, this was the slowest rate of growth for three-and-a-half years and was being driven by worsening rental affordability.
It found that while rental market conditions had improved after three years of demand outstripping supply, there was still a lack of rental homes, which was resulting in increases.
The average letting agent had 13 homes for rent on their books, which was higher than the low of 10 seen in 2023 but still 22% lower than before the pandemic. This was contending with an average of 12 prospective tenants for each property.
Although this was half the demand seen between 2022 and 2024, it was still double the pre-pandemic levels.
Rents go up in affordable cities
Zoopla said rental demand had dampened in all regions and countries of the UK since last year, and supply was rising in all areas except for the West Midlands. Here, supply was lower than a year ago.
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There was a mixed picture of rental inflation, with increases of 1.1% in London, 6.3% in the North East and 9% in Northern Ireland.
The rate of rental increases has slowed the most in London, Scotland and the East Midlands because of an improvement in supply and affordability.
In Nottingham, average rents fell by 1.2%, which Zoopla said was a sign of how localised changes in supply and demand could have an impact.
Rents were found to have risen faster in smaller cities with less pressured affordability, such as Blackburn at a rate of 10.1%, Stoke at 9.8% and Rochdale at 9.6%.
Richard Donnell, executive director at Zoopla, said: “Rents are rising more slowly than average earnings, which will be welcome news for renters after three years where rents have risen rapidly. Affordability remains the primary constraint on rental inflation, rather than increased supply and greater choice of homes for rent.
“We expect demand for rented homes to continue to exceed available supply in 2025, keeping a steady upward pressure on rents. The overall stock of private rented homes is unlikely to increase in size in the coming years due to rental reforms and policy changes impacting levels of new investment. It’s important that reforms in the private rented sector are designed and rolled out to minimise the negative impacts on available supply, which hit those with lower incomes hardest.
“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.”
Rental reforms to impact supply
Zoopla said the proposed policy changes impacting England’s private rental market could limit investment and the number of available rental homes within the next 2-5 years.
It said new investment in private rental homes had already been affected by tax changes introduced in 2016, followed by higher mortgage rates constraining new investment from 2022 onwards.
The firm said the number of private rented homes in Great Britain had stayed static at five-and-a-half million since 2016, but demand had outgrown this, causing rents to rise by 24% in the last three years.
Zoopla said the Renters’ Rights Bill would make the private rental sector more complex and costly for a landlord, which would limit new investment and growth in rental supply.
The proposed requirement to make sure private rental homes have an energy rating of at least a C could also reduce supply if landlords choose to exit the market rather than invest in renovations, Zoopla suggested.
