UK Rental Market Update 2025-2026: Strong Demand Continues

 
22/12/2025

The UK rental market continues to show robust performance in 2025-2026, with rental prices rising steadily across most regions. Understanding these trends is crucial for both landlords considering investment and tenants planning their housing budgets.

Current Rental Market Statistics

According to the latest Office for National Statistics data (November 2025), the UK rental market shows:

National Average Rent: £1,366 per month
Annual Growth: 4.4% (down from 5.0% the previous month)

 

Regional Breakdown:

England
- Average rent: £1,422/month
- Annual growth: 4.4%

Wales
- Average rent: £820/month
- Annual growth: 6.1% (highest growth rate)

Scotland
- Average rent: £1,012/month
- Annual growth: 3.3%

While rental growth has moderated from the highs of 2022-2023, it continues to significantly outpace general inflation, reflecting the ongoing imbalance between supply and demand in the rental sector.

What's Driving Rental Growth?

1. Chronic Supply Shortage
The fundamental issue remains housing supply:
- The UK needs 300,000 new homes annually
- Current delivery falls well short of this target
- The private rented sector has seen landlords exit due to regulatory changes
- Build-to-Rent developments can't fill the gap quickly enough
- Student accommodation takes some pressure off but affects specific areas only

The RICS Residential Survey shows landlord instructions remain in negative territory throughout 2025, meaning fewer properties are coming to the rental market than are leaving it.

2. Changes in Demand Patterns
Several factors are shaping rental demand:

- First-time buyers are increasing (39% of sales) but many still rent while saving
- Young adults living with parents longer due to affordability pressures
- International students returning post-pandemic
- Continued migration, though at lower levels than 2022-2023
- Workers returning to cities as hybrid working settles into patterns

3. Landlord Economics
Rising costs are putting upward pressure on rents:

- Higher mortgage costs for buy-to-let landlords
- Increased insurance premiums
- Higher property maintenance costs
- Regulatory compliance costs
- Energy Performance Certificate upgrade requirements

While landlords can't simply pass all costs to tenants, these factors support rent increases where market conditions allow.

 

4. Economic Factors
The broader economy influences rents:

- Wage growth of 5-6% makes higher rents affordable for many
- Employment remains strong
- Cost of living pressures have eased from 2022-2023 peaks
- Mortgage affordability improving slowly

Regional Performance

Rental growth varies significantly by region:

London
Despite being the most expensive market, London has seen more moderate growth:
- Average rent: £2,000-2,200/month
- Growth: 3-4% annually
- High stamp duty and property prices limiting landlord investment
- Some tenants priced out, moving to commuter zones
- Luxury and super-prime segments showing weakness

North West England
Strong rental growth continues:
- Manchester average: £1,100-1,200/month
- Liverpool average: £830-870/month
- Growth: 6-8% annually in many areas
- Strong economic growth
- Undersupply relative to demand
- Attractive landlord yields maintaining investor interest

Midlands
The Midlands shows robust rental performance:
- Birmingham average: £1,000-1,100/month
- Growth: 5-7% annually
- Regional economic growth
- HS2 impact (despite uncertainties)
- Ongoing regeneration projects

Scotland
More moderate but steady growth:
- Edinburgh average: £1,300-1,400/month
- Glasgow average: £1,000-1,100/month
- Growth: 3-4% annually
- Different regulatory environment providing some stability

Impact of the Renters' Rights Act 2025

The new Renters' Rights Act, coming into force in May 2026, is already influencing the market:


Potential Positive Impacts:
- Greater tenancy security encouraging longer stays
- Reduced turnover costs for landlords
- Better quality properties as standards rise
- More professional landlords remaining in market

Potential Negative Impacts:
- Some landlords exiting before May 2026
- Reduced supply in short term
- Compliance costs passed through to rents
- Uncertainty during transition period

What Does This Mean for Landlords?

Rental Income Opportunities
Current conditions favor landlords who:
- Invest in high-demand areas
- Maintain properties to good standards
- Provide professional, responsive service
- Understand local market dynamics

Average gross yields across UK cities:
- Manchester: 6-7%
- Liverpool: 7-8%
- Birmingham: 6-7%
- Leeds: 6-7%
- Sheffield: 7-8%
- London: 3-4%

Strategic Considerations

Successful landlords in 2026 are:
- Focusing on regional cities with better yields
- Ensuring properties meet evolving standards
- Building portfolios in multiple locations
- Using professional management to stay compliant
- Preparing for the May 2026 regulatory changes

What Does This Mean for Tenants?

Affordability Challenges
While wage growth is outpacing rent increases (unlike 2022-2023), affordability remains stretched:

- Many renters spend 30-40% of income on rent
- Saving for deposits increasingly difficult
- Competition for properties remains intense
- Bidding wars continue in hotspots

Tenant Strategies
To navigate the market:
- Start searching early - properties let quickly
- Have paperwork ready (references, proof of income)
- Be realistic about what you can afford
- Consider slightly less central locations for better value
- Understand your rights under new legislation
- Build good relationships with landlords

New Rights from May 2026

Tenants will gain:
- Protection from Section 21 "no fault" evictions
- Periodic tenancies providing more security
- Right to challenge excessive rent increases
- Stronger protections against discrimination
- Access to ombudsman for disputes

 

Future Outlook for 2026-2027

Rental Growth Predictions
Most forecasters expect:
- Continued but moderating rental growth
- 3-5% annual increases in 2026
- Regional variations persisting
- Supply constraints maintaining pressure
- Wage growth gradually improving affordability

Supply Side Developments
Several factors may ease supply pressures:
- Build-to-Rent sector expanding (though slowly)
- Purpose-built student accommodation (PBSA) reducing pressure in university cities
- Some first-time buyers leaving rental market
- Potential for more landlords entering once regulatory uncertainty clears

However, the immediate impact of the Renters' Rights Act may see some landlords exit, temporarily worsening supply.

Demand Side Factors
Demand likely to remain strong due to:
- Continued population growth
- Household formation
- High house prices keeping people in rental market longer
- Flexibility preferences post-pandemic
- International students and workers

Regional Spotlight: Areas to Watch

Manchester
- Rental growth: 6-7% expected in 2026
- Average rent: £1,100-1,200/month
- Strong tech sector growth
- Major regeneration ongoing
- Excellent fundamentals

Liverpool
- Rental growth: 7-9% expected in 2026
- Average rent: £830-870/month
- Exceptional value proposition
- Major waterfront development
- Rapidly improving market

Birmingham
- Rental growth: 5-7% expected in 2026
- Average rent: £1,000-1,100/month
- HS2 beneficiary
- UK's second-largest city
- Diverse tenant base

Leeds
- Rental growth: 5-6% expected in 2026
- Average rent: £950-1,000/month
- Financial services hub
- Strong student market
- Professional tenant base

Sheffield
- Rental growth: 6-8% expected in 2026
- Average rent: £850-900/month
- Affordable city
- Two major universities
- Regeneration momentum

Investment Opportunities

For property investors, the rental market presents opportunities:

Buy-to-Let Remains Viable
- Strong yields in regional cities
- Undersupply supporting rents
- Professional landlords benefiting from amateur exits

Build-to-Rent
- Institutional investment increasing
- Professional management from day one
- Economies of scale
- Purpose-built for rental

HMOs and Student Properties
- High yields (8-12% possible)
- Strong demand in university cities
- Requires active management
- Higher regulatory requirements

PropHome's Perspective

At PropHome, we're seeing:

  • Landlord Demand: Strong interest in regional buy-to-let opportunities
  • Tenant Demand: Consistently high across our managed properties
  • Rental Growth: Achieving market or above-market rents for quality properties
  • Void Periods: Minimal for well-presented, fairly priced properties
  • Compliance: Helping landlords prepare for May 2026 changes


Our approach focuses on:

  • Professional property presentation
  • Competitive but realistic pricing
  • Thorough tenant vetting
  • Responsive maintenance
  • Compliance with all regulations
  • Building long-term landlord-tenant relationships



The UK rental market in 2025-2026 remains characterised by:

  • Strong fundamentals driving demand
  • Supply constraints supporting rental growth
  • Regional opportunities outperforming London
  • Regulatory changes creating challenges and opportunities
  • Continued undersupply likely for years to come


For landlords, focusing on high-demand areas, maintaining quality standards, and working with professional management positions you for success in this market.

For tenants, understanding your rights, being prepared, and moving quickly when you find the right property are key strategies.

The rental market will continue to evolve, but the underlying imbalance between supply and demand suggests rental growth will remain a feature of the UK housing market for the foreseeable future.

For professional property management that maximises your rental income while ensuring compliance, call 0345 8686868 or email info@prophome.co.uk.

 
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