Hamptons now expects rents to rise by just 1% at the end of the year, it said in its lettings index, lower than its original prediction of 4.5%.
This comes after a notable deceleration in rental growth, with rents of newly let properties just 0.4% up across Great Britain in June to average £1,369. Hamptons said this was the weakest growth since August 2020 and down from a rise of 5% during the same period last year.
Meanwhile, the average monthly rent was 3.9% higher at £1,283.
Shift to homeownership
Hamptons said the main reason for the cooler rental demand was the increased access to homeownership due to lower mortgage rates.
It said demand had shifted from the rental sector to the sales market, and over the first half of 2025, first-time buyers made up a record 33% of house sales.
This coincided with an 11% fall in tenant demand when compared to last year, which was also 20% lower than the comparative period in 2019.
Further, lower mortgage rates mean less financial pressure on landlords, so fewer are passing on costs to tenants.
Although there was less tenant demand, there were 8% more homes available to rent than last year.
Hamptons said this was not a sign of more landlord investment but instead a slowdown in tenant demand, with properties taking longer to let. Tenants were also said to be exiting the rental sector, but not being replaced at the same rate.
Slower pace of rent renewals
Hamptons found that rents on renewed tenancies were rising faster than new lets, but still, this had nearly halved from 7.6% in June 2024 to 3.9% this year.
Now, the gap between new lets and renewals is at its smallest since summer 2021.
The average rent on a renewed tenancy was £1,283 per month, 6% or £86 less each month than a new let. This was compared to a 12% or £151 gap in June 2023.
Economic impact on rental growth
The economy is also suppressing rental growth, Hamptons said.
The labour market has weakened more than expected, with many job losses in hospitality and graduate roles, which usually have a high share of renters.
Unemployment has been increasing and is expected to reach around 5% by the final quarter of this year, which could further impact rental demand.
Also, earnings growth has slowed more than forecast, as although it rose 5% in May, the Bank of England thinks it will fall to around 3% next year.
Although there were short-term pressures on rental growth, Hamptons said in the longer term, the supply shortage and relatively high mortgage rates would support rental inflation from 2026 and beyond.
The Renters’ Rights Bill and energy-efficiency requirements could also lead to a rise in rents.
Because of the weaker labour market, Hamptons has downgraded its expectations for rental growth in 2026 and 2027 by 0.5% each year, and forecasts rises of 3.5% in Q4 2026 and 3% in Q4 2027.
Rents are expected to increase by 18% between the end of 2022 and the end of 2027, costing the average tenant an extra £2,650 each year.
Rents falling in a number of regions
London still recorded the most significant decline in rents, with rents on newly let properties falling for the sixth month in a row, down 2.5% year-on-year.
This was the biggest yearly decline since May 2021.
Meanwhile, the average rent for a newly let property in London was £2,288, similar to levels seen in May 2023.
In Inner London, average rents fell to their lowest level since October 2022, down 3.8% annually to £2,694 per month.
There were also rental declines seen in Scotland and Wales. In Scotland, the average rent for a new let dropped by 0.5% annually, marking the first decline since December 2019. Rents in Wales fell by 0.9%.
In regions where rents had been increasing rapidly, such as the North of England, Hamptons recorded a slowing in annual increases from 8.4% in June last year to just 1.8% this year.
Not the end of the rental growth story
Aneisha Beveridge, head of research at Hamptons, said: “The rental market softened more quickly than we anticipated towards the end of last year. 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.”
