Market Forecast: Rental Trends for the Next 12 Months

As we move through 2025, the UK rental market is experiencing a period of adjustment. After years of rapid rent increases and a tight supply-demand imbalance, recent data suggests a moderation in growth. However, underlying challenges persist, and landlords must stay informed to navigate the evolving landscape effectively.​

Cooling Rental Inflation

Rental inflation has begun to slow across the UK. According to Zoopla's March 2025 Rental Market Report, average rents have risen by 3% over the past year—the slowest rate in 3.5 years. This deceleration is largely attributed to affordability constraints, as renters grapple with increased living costs. Despite the slowdown, the average UK rent for new lets stands at £1,284 per month, up from £1,245 in July 2024. ​

Rightmove echoes this trend, forecasting a 3% rise in advertised rents both inside and outside London for 2025. This suggests a more sustainable growth pattern, offering some relief to tenants while still providing steady returns for landlords. ​

Persistent Supply-Demand Imbalance

While rental inflation is moderating, the fundamental issue of supply and demand remains. Zoopla reports that there are still 12 renters competing for every available property, indicating a market that continues to favor landlords. Although rental demand has cooled by 17% compared to the previous year, the number of homes available for rent has only increased by 11%, leaving supply below pre-pandemic levels. ​

This imbalance is further exacerbated by landlords exiting the market due to regulatory changes and increased costs. A report from Pinpoint Finance highlights that one in five landlords plans to downsize their property portfolio in 2025, driven by higher mortgage costs, tax changes, and stricter rental regulations. 

Regional Variations in Rental Growth

Rental growth is not uniform across the UK. In London, rents have increased by just 1.2% over the past year, reflecting a more saturated market. Conversely, regions like Northern Ireland and parts of the North East have seen annual rent increases of 10.5% and up to 6.3%, respectively. 

Cities such as Manchester and Leeds are experiencing significant growth, with Manchester's rental yields averaging 6.5% and reaching up to 12% in high-performing areas. These regional disparities present opportunities for landlords to diversify their portfolios and capitalize on higher yields outside of traditional hotspots. ​

Regulatory Changes and Their Impact

Landlords must also contend with a shifting regulatory landscape. The proposed Renters' Reform Bill aims to abolish Section 21 evictions and introduce more stringent property standards. Additionally, from 2028, all rental properties will need to have an Energy Performance Certificate (EPC) rating of 'C' or above. Currently, nearly half of rented homes require investment to meet this standard, posing a significant challenge for landlords.

These changes may increase operational costs and influence landlords' decisions to remain in or exit the market. However, they also present an opportunity for proactive landlords to upgrade their properties, potentially attracting more environmentally conscious tenants and commanding higher rents.

Strategic Considerations for Landlords

Given the current market dynamics, landlords should consider the following strategies:

• Evaluate Portfolio Performance: Assess the profitability of each property, considering regional trends and potential for rental growth.​

• Plan for Regulatory Compliance: Budget for necessary upgrades to meet upcoming EPC requirements and stay informed about legislative changes.​

• Explore Emerging Markets: Investigate high-growth regions outside of London, such as the North West and Midlands, for potential investment opportunities.​

• Enhance Property Appeal: Invest in property improvements that align with tenant preferences, such as energy efficiency and modern amenities, to reduce void periods and increase rental income.​

The UK rental market in 2025 is characterized by moderated rent increases, persistent supply-demand imbalances, regional growth disparities, and evolving regulations. Landlords who stay informed and adapt to these changes can position themselves for continued success in a complex and competitive market.