The UK rental market is showing renewed momentum, with property portal Zoopla revising its full-year growth forecast upward. The company reported that asking rents for new tenancies rose 2.6% year-on-year in July, and it now expects annual growth across privately rented homes to reach between 4% and 5% by December. This marks a significant shift from the 2% to 3% range it had projected in June.
The revision is particularly notable for housing investors because it comes at a time when demand indicators remain muted. The pressure is emanating from the supply side of the market: fewer landlords are offering properties for rent, while refinancing costs have climbed. This combination can push rents higher without necessarily improving landlords' returns.
Official Data Points in Same Direction
The Office for National Statistics (ONS) reported that average private rents across new and existing tenancies rose 3.7% in the 12 months through July, up from 3.3% in June, bringing the average monthly rent to £1,393. These figures are provisional, with the next release scheduled for September 16.
It's important to note that Zoopla's index and the ONS measure are not directly comparable. Zoopla tracks asking rents for new lets and adjusts them toward achieved rents, while the ONS series covers the entire stock of private tenancies. New-let prices typically react first to market changes, whereas the ONS measure captures rent resets more gradually. The common signal, however, is a turn upward after a period of cooling.
Supply Squeeze, Not Demand Boom
In its June rental report, Zoopla counted 25% fewer homes available to rent compared to pre-pandemic levels. It also found 5.6 enquiries per available home in May, far below the 2022 peak of 15.5. This helps explain why rents can reaccelerate even when renters are not flooding the market.
The Royal Institution of Chartered Surveyors (RICS) July survey echoed this trend. Its tenant-demand balance slipped to -1%, effectively flat, but landlord instructions stood at -27%. A net 28% of respondents expected rents to rise over the next three months. These balances are directional surveys, not growth rates, but they clearly indicate a supply-driven market.
Financing Costs Weigh on Landlords
Financing is a key reason why supply may remain tight. The Bank of England's Bank Rate is 3.75%, but that is not the rate most leveraged landlords can borrow at. According to Moneyfacts data reported by MoneyWeek, the average two-year fixed buy-to-let rate stood at 5.32% on September 7, up from 4.65% on March 2. The central bank's next decision is scheduled for September 17.
A simple example illustrates the tension: on a £250,000 interest-only mortgage, a move from 4.65% to 5.32% adds about £1,675 per year in interest before fees and taxes. A landlord collecting £1,393 per month would need roughly 10% more gross rent to cover that increase alone. This is an illustration, not an estimate of the average landlord's loan or profit.
Implications for Listed Companies
For UK banks and specialist mortgage lenders, higher rates can support loan margins but suppress new borrowing and raise refinancing risk. Investors should watch buy-to-let completions, arrears, and loan-to-value ratios rather than assume rising rents are automatically good for every lender.
Residential landlords and build-to-rent operators have a more direct route to higher revenue, especially where leases reset frequently. Their results still depend on occupancy, interest expense, maintenance, and regulation. England's Renters' Rights Act began taking effect on May 1, adding operational obligations at the same time as debt costs increased.
Homebuilders face a two-sided effect. Expensive mortgages can keep would-be first-time buyers renting for longer, supporting rental demand, but the same affordability pressure weakens new-home reservations. ONS data showed UK house-price growth slowed to 2.0% in June even as rent inflation accelerated in July.
Outlook and Key Tests
The strongest case against Zoopla's new forecast is that borrowing costs could fall quickly or landlords could return as yields improve. Its own June estimate was materially lower, so the December range should be treated as a scenario rather than a settled outcome. The next ONS rent release, the September 17 Bank of England decision, and RICS landlord-instruction readings will provide three near-term tests.
