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17/12/25 3:30 pm
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The lettings market began to stabilise in 2025, following several years of extreme imbalance. While the gap between supply and demand narrowed significantly, it remained well above pre-pandemic levels. This ongoing shortage of rental stock, combined with real-terms wage growth still slightly outpacing inflation, meant rents continued to rise – though at a far more measured pace than in recent years.
Despite softer rent growth, yields held up well. Rightmove data shows that by mid-2025, the average UK gross yield was 6.3%, ranging from 5.7% in London to 8.1% in the North East. All English regions recorded a modest annual increase, underlining the continued appeal of buy-to-let for income-focused investors.
Rent growth forecasts in 2026
Rental pricing is influenced by competition, but affordability remains the dominant factor. Although many parts of the UK continue to face an undersupply of rental homes, slowing wage growth is expected to cap future rent increases.
In real terms, wages only marginally outpaced inflation in 2025. Annual earnings growth is forecast to fall below 3% in 2026 and ease further to around 2.5% in 2027. This weakening income growth will inevitably limit landlords’ ability to push rents higher, particularly given the risk of increased arrears if affordability is stretched too far.
Demand has also softened. Compared with this time last year, tenant demand is down by around 20% and is now at its lowest level in six years, outside of London. This reflects two key trends: a sharp fall in net migration, which dropped by 78% in the two years to June 2025, and improved mortgage affordability for first-time buyers. In the nine months to September 2025 alone, first-time buyer mortgage volumes rose by 20%.
As more renters have been able to step onto the housing ladder, additional rental stock has returned to the market, helping to ease the long-standing imbalance between supply and demand.
Against this backdrop, rent growth is expected to slow to around 2.5%, according to Zoopla.
The Renters’ Rights Act
The Renters’ Rights Act will be the defining influence on the lettings sector in England for 2026. From 1 May, the new assured tenancy will come into force, ending fixed terms, abolishing Section 21, limiting rent increases to once a year and introducing tighter rules around possession, rent in advance and pets.
Limiting landlords to a single rent increase each year and only where it reflects local market levels, plus the ban on rental bidding above the advertised price, should further dampen upward pressure on rents, contributing to more moderate rental inflation generally.
Overall, 2026 will be about execution. The most successful landlords will be those who prepare early, invest in the right advice and take a proactive approach in regard to the Renters’ Rights Act.
For further lettings forecasts, get your copy of our free 2026 guide here.
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