Zoopla is warning that rental reforms will limit new investment and the number of homes to let and push rents up further.

It claims the market is steadily improving with 11% more homes for rent while demand is 17% lower due to lower levels of immigration and more tenants buying.

The average UK rent for a new let is now £1,284pcm, some 3% up on a year ago. This is the lowest rental growth for three and a half years, driven by worsening rental affordability rather than a major increase in the supply of homes to rent. 

The average letting agent has 13 homes for rent, up from 10 in 2023 but still 22% below the pre-pandemic average.

There are 12 renters currently chasing each home for rent – half the level recorded between 2022 and 2024 but still double pre-pandemic levels.

But the portal warns of imminent limits on new investment and the number of private rented homes in the next two to five years. 

Levels of new investment in private rented supply have been lower since tax changes introduced in 2016. Higher mortgage rates since 2022 have compounded the squeeze on new investment, meaning the number of private rented homes across Britain has been static at c5.5m since 2016. 

Demand has grown faster than supply, which is why rents have risen by 24% over the last three years.

But the demand for renting has cooled across all regions and countries of the UK over the last year, and supply is starting to increase across all areas except the West Midlands.

Rental inflation ranges from 1.1% in London to 6.3% in the North East and 9.0% in Northern Ireland. The growth in rents has slowed most rapidly in London, Scotland and the East Midlands.

Rents are falling by -1.2% in Nottingham, highlighting how localised changes in supply and demand shape the trajectory of rents. 

However, rents continue to rise more quickly in smaller cities where affordability is less of a constraint on rental growth, for example Blackburn (10.1%), Stoke (9.8%) and Rochdale (9.6%).

Zoopla says that Labour’s Renters Rights Bill will increase the complexity and cost of being a landlord in England, and is likely to limit levels of new investment.

Another future risk to supply comes from proposals for private rented homes to have an energy rating of ‘A’, ‘B’ or ‘C’ before they can be let out from 2028.  

Almost half (45%) of rented homes require investment to get from a D rating to a C rating. While 16% of private rented homes are currently ‘E’, ‘F’ or ‘G’ rated and, as a result, are more at risk of being lost from the rental market, eroding available supply.

Richard Donnell, Executive Director at Zoopla, says: “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 three to four per cent over 2025 as slower growth in large cities is offset by faster growth in more affordable markets.”