BLOGS

The great rental cooldown

For the first time since the pandemic, UK tenants are seeing meaningful relief from runaway rents. After several years in which annual rental growth regularly exceeded 10% in major cities, REalyse data shows year-on-year increases have dropped to a median of 2.2% across England's key rental markets.

The shift reflects a combination of improved supply, evolving tenant behaviour and—in some nations—the impact of rent regulation. While affordability remains stretched, particularly in London and the South East, the trajectory has decisively changed.

Where rents are cooling fastest

Scotland leads the way in rental stabilisation, with average asking rents rising just 0.9% year-on-year to £1,168 per month. The Scottish Government's rent cap legislation, first introduced in 2022 and subsequently refined, appears to be having its intended effect—albeit with ongoing debate about its impact on new supply.

London, historically the engine of UK rent inflation, has seen growth moderate to 2.2%. Average asking rents now stand at £2,808 per month, but the pace of increase has more than halved compared to 2023. The South East mirrors this pattern with 1.3% annual growth, bringing average rents to £1,688.

By contrast, regions outside the southern rental hotspots continue to see stronger growth. Wales recorded 4.5% annual rent increases, while the North West posted 4.3% growth with average asking rents reaching £1,189. These areas are playing catch-up after years of relatively modest rental inflation, and investor activity in cities like Manchester and Liverpool remains robust.

Supply finally responds

A critical driver of the cooldown is improving supply. REalyse data shows quarterly rental listings stabilising between 210,000 and 230,000 properties since mid-2025—a marked improvement from the scarcity that defined 2022 and 2023.

The Q2 2025 peak of 242,000 new rental listings represented the strongest quarter for supply in recent years. While some landlords continue to exit the sector, citing tax changes and regulatory burden, others are clearly returning or holding stock rather than selling.

Days on market have actually shortened across all property types, with flats now averaging 38 days compared to 43 days in the previous year—an 11% reduction. Terraced, semi-detached and detached properties show similar improvements. This suggests landlords are pricing more realistically, accelerating lettings even as overall market pressure eases.

Yields stabilise as the market rebalances

For investors, the flattening of rents is compressing yield potential in some areas while creating opportunities elsewhere.

London's average gross yield has slipped to 4.7%, down from 4.9% a year ago, as property values remain elevated but rental growth slows. Scotland maintains the strongest yields at 7.2%, though this is essentially unchanged year-on-year given minimal rent growth.

The South East presents an interesting case: yields have improved by 0.2 percentage points to 5.7% as rent growth, while modest, has outpaced house price appreciation. For buy-to-let investors seeking a balance of capital stability and income return, this shift may warrant attention.

The North West and Wales continue to offer yields above 6.3%, combining relatively affordable entry prices with stronger rental demand—though investors should factor in the potentially transitory nature of the current growth differential.

Regulation, reform and what comes next

Scotland's rent cap experiment

Scotland's experience offers a preview of what intervention-led markets may look like. With annual rent growth held under 1%, tenants benefit from predictability. However, industry groups continue to flag reduced landlord investment, slower new-build starts for private rental, and a tightening of supply at the affordable end of the market. REalyse planning data suggests build-to-rent pipeline activity in Scotland remains subdued compared to England.

The Renters' Rights Act

In England, the Renters' Rights Act—now in effect—has introduced indefinite tenancies and removed Section 21 no-fault evictions. Early evidence suggests this has not triggered the mass landlord exodus some predicted, though portfolio adjustments continue. Agents report that professionally managed stock is letting faster, as tenants prioritise security of tenure.

Interest rates and mortgage costs

Base rate cuts through late 2025 and into 2026 have eased pressure on leveraged landlords, but buy-to-let mortgage rates remain elevated compared to pre-2022 levels. This continues to influence both pricing decisions and exit calculations for smaller landlords.

Outlook: stabilisation, not collapse

The rental market is rebalancing rather than crashing. Supply improvements and regulatory changes are delivering the intended effect of slowing rent inflation, but underlying demand—driven by population growth, household formation and constrained home ownership—remains solid.

For tenants, the message is cautiously positive: bidding wars are less common, negotiation is possible, and the worst of the affordability squeeze may be behind them in most regions.

For landlords and investors, portfolio positioning matters more than ever. Scotland's regulatory environment presents distinct challenges. London offers liquidity but compressing yields. The North West and Midlands continue to attract capital seeking stronger income returns, though supply-demand dynamics vary significantly by city and even postcode.

REalyse data will continue tracking these shifts, providing the granular market intelligence that investors, agents and lenders need to make informed decisions in a sector where national headlines often mask significant local variation.