UK rental prices are forecast to rise by 17.6% over the next five years, driven by an ongoing imbalance between high tenant demand and constrained supply, according to property consultancy Savills.
However, the firm warns that the figure could climb even higher if landlords continue to exit the market.
Supply squeeze deepens
Tenant demand remains elevated despite coming down from record highs seen in 2021 and 2022. At the same time, rental stock is in short supply.
- The number of rental listings per active branch in September 2024 was 16% below pre-pandemic levels (2018/19).
- Properties are letting 20% faster this year than in 2018/19, pushing rents higher.
“It is challenging to see where an increase in rental supply will come from in the next couple of years,” says Guy Whittaker, research analyst at Savills.
The 2% Stamp Duty Land Tax surcharge on second homes is deterring new buy-to-let investors and portfolio expansion. Meanwhile, landlords face pressure to improve EPC ratings to a minimum of C by 2030, which could render many properties unviable for letting.
“In markets where required upgrades exceed an entire year’s rental income, selling may make more financial sense for landlords,” adds Whittaker.
Affordability constraints in London
While the national rental market is expected to continue growing faster than incomes, London is seeing affordability constraints limit further increases.
- Londoners spent as much as 43% of their income on rent in 2023, which has slowed rental growth to 1.5% in 2024, down from prior years.
- Savills forecasts 2.5% rental growth in London in 2025, lagging behind expected income growth of 2.9%.
However, this trend could reverse as landlords exit the market, reducing supply further.
“Affordability will once again take a backseat, meaning rental growth could exceed current forecasts,” says Whittaker.
Long-term outlook
Savills expects UK rental growth to average 3% annually between 2025 and 2029, slightly outpacing income growth (2.9% annually). By 2029, cumulative rental growth across the UK is forecast at 17.6%, compared to 14.2% in London.
Year | UK Rental Growth | London Rental Growth | UK Income Growth |
2024 | 4.0% | 1.5% | 2.9% |
2025 | 4.0% | 2.5% | 2.9% |
2026 | 3.5% | 2.5% | 2.6% |
2027 | 3.0% | 2.5% | 2.5% |
2028 | 3.0% | 3.0% | 3.1% |
2029 | 3.0% | 3.0% | 3.0% |
Policy changes needed
Savills highlights the need for government intervention to address the supply-demand imbalance. Policies supporting new rental stock creation and assisting landlords with regulatory compliance, such as energy efficiency upgrades, could stabilise rents while retaining investment in the private rented sector.
Without action, the ongoing squeeze on supply could see rents spiral further, leaving tenants facing even greater affordability pressures.