UK rental growth is accelerating again as higher mortgage rates keep would-be first-time buyers renting for longer and the supply of available homes declines, according to Zoopla.

The property portal expects rents to be rising by between 4% and 5% by the end of 2026, compared with annual growth of 2.6% currently.

Average UK rents now stand at £1,340 a month, with annual growth having increased from a recent low of 1.6% in February.

Zoopla said the change follows a sharp slowdown in rental inflation during 2024 and 2025, when a three-year recovery in the supply of rental properties helped ease pressure on rents.

That recovery appears to have gone into reverse. The number of homes available to rent began falling in May and is now 3% lower than a year ago. In August, the flow of homes coming on to the rental market was 6% below the level recorded a year earlier.

At the same time, higher mortgage rates since the beginning of the year have made it harder for first-time buyers to move into homeownership, adding to demand for rented accommodation.

The number of enquiries per UK rental listing is now 6% higher than a year ago at 5.3, its highest level for 22 months.

LONDON FEELS IMPACT OF HIGHER MORTGAGE RATES

Zoopla said rents were generally rising fastest in areas where rental supply had fallen most sharply, although London was an exception because both demand and supply were tightening.

London rental growth has risen to 2.9%, compared with 1.7% a year ago. Zoopla estimates that the average London homebuyer needs to find an additional £35,500 for a deposit to offset higher mortgage rates introduced this year, compared with £18,200 nationally.

The effect is particularly pronounced in inner London. Across the SE, E, N, NW, SW, W, EC and WC postal areas, rental demand is higher than a year ago while the number of homes available to rent has fallen 13%. Rental growth across these areas is running at between 3% and 4%.

Yorkshire and Humberside has also experienced an acceleration in rental growth alongside a 12% fall in the number of homes available to rent. By contrast, Wales has recorded the sharpest slowdown in rental growth as available rental stock increased by 7%.

Zoopla said the regional pattern suggested higher rental inflation was not a consequence of the Renters’ Rights Act in England, pointing to similar trends of falling supply and rising rents in Scotland.

AFFORDABLE MARKETS RECORD STRONGEST GROWTH

Rental growth remains strongest in many of the UK’s more affordable markets. Areas where average rents are below £750 a month are recording annual growth of 5.4%, more than twice the national rate of 2.6%.

Zoopla said tenants in less expensive markets had greater capacity to absorb increases before reaching affordability limits, while rents in higher-cost areas were already constraining how much further landlords could raise them.

Some of the fastest increases have been recorded in smaller towns in Scotland and northern England. Rents in Dumfries have risen 11.3%, while Carlisle has recorded an 8.8% increase.

In many of these areas, demand is weaker than a year ago, according to Zoopla, suggesting that declining rental supply rather than increased competition among tenants is driving the increases.

RENT GROWTH EXPECTED TO ACCELERATE

Zoopla expects rental inflation to continue increasing during the remainder of the year, with annual growth reaching between 4% and 5% by the end of 2026.

It attributed the outlook to higher mortgage rates keeping renters in the sector for longer and continued subdued investment in new rental properties by landlords and investors.

Richard Donnell, executive director at Zoopla, said: “The rental market is starting to tighten again after three years in which the supply of homes for rent has steadily improved and rental growth slowed easing the pressure on renters.

“Our latest report shows how sensitive the rental market is to even modest changes in how many homes are available for rent.

“Higher mortgage rates are not just impacting the sales market, they are keeping more would-be first-time buyers in rented homes for longer, reducing available supply just as the seasonal upturn in demand gets into full swing.

“This is pushing rents higher again, mainly in regions where the availability of homes for rent has declined the most, although affordability remains an important constraint on how far rents can rise.

“The upward pressure on rents is greatest in London, where higher mortgage rates have had the biggest impact on home buyers, and in more affordable rental markets where renters have greater capacity to absorb increases.

“Low levels of new investment by landlords and renters renting for longer mean we expect UK rents to increase by 4–5% by the end of the year.

“Growing the number of homes for rent through increased investment is the most sustainable route to boosting choice for renters and ensuring stability in rent levels over the long run.”

Allison Thompson, chief lettings officer at LRG, said: “These latest figures reflect the strong level of tenant demand we are seeing, but the real interest lies behind the headline figures, specifically regarding the relationship between the sales and rental markets.

“Higher mortgage costs mean that some tenants are renting for longer than perhaps planned, while a previous dip in landlord investment is limiting replacement stock.

“Yet in London and the South East, falling property prices substantially improve yields. Not surprisingly, we are seeing established investors looking to expand. Clearly serious landlords recognise this unusual set of circumstances as a rare opportunity which they are keen to capitalise on.”