Hamptons cuts 2025 rental forecast amid market cooling

Annual rents in London have recorded the steepest drop since May 2021, according to newly released data from Hamptons.

Related topics:  Landlords,  Rental Market,  Hamptons
Property | Reporter
21st July 2025
To Let 855
"A combination of falling mortgage rates and a weaker labour market is reshaping the market. More affluent renters are becoming first-time buyers, while others are hitting affordability limits"
- Aneisha Beveridge - Hamptons

Hamptons has downgraded its 2025 rental growth forecast for Great Britain from 4.5% to 1.0% following a faster-than-expected slowdown in the rental market.

In June, rents on newly let homes rose by just 0.4% year on year, the weakest increase since August 2020. The drop in growth was most pronounced in London, where rents fell 2.5% over the year. Wales and Scotland also saw declines of 0.9% and 0.5% respectively.

The softening rental market is being driven by a shift in demand. Falling mortgage rates have helped more renters move into homeownership, with first-time buyers accounting for a record 33% of home sales across Great Britain in the first half of 2025.

This has contributed to an 11% decline in tenant demand compared with the same period last year and a 20% drop from 2019 levels. At the same time, the number of rental homes on the market has increased by 8% reflecting longer void periods rather than new investment.

Landlords are also under less pressure to raise rents. Those remortgaging in 2025 have typically secured better rates than in recent years, reducing the need to pass on additional costs to tenants.

Labour market weighs on growth

Broader economic conditions are also playing a role. HMRC data shows the number of payroll employees fell by 178,000 over the past year, with job losses concentrated in sectors that traditionally house a high number of renters, such as hospitality and graduate-level roles.

Unemployment is expected to reach 5% by the end of 2026 while wage growth, a key driver of rental inflation, is forecast to slow from 5.0% in May to around 3% next year.

Regional trends deepen

London remains at the sharp end of the market adjustment. June marked the sixth consecutive month of rent declines for newly let homes in the capital, where average monthly rents now stand at £2,288, back to May 2023 levels.

Inner London saw a steeper annual decline of 3.8% with rents falling to £2,694 per month, their lowest level since October 2022.

Rents also fell in Scotland and Wales in June, down 0.5% and 0.9% respectively. In the North of England, where rents had been rising most rapidly, annual growth slowed from 8.1% in June 2024 to 1.8% this year. The South recorded growth of 1.7% while the Midlands outperformed slightly with a 3.3% rise.

Renewal rents still outpacing new lets

Rents on renewed tenancies continue to grow faster than new lets, but the gap is narrowing. In June, renewal rents rose 3.9% year on year, down from 7.6% a year earlier.

The average rent on a renewed tenancy now stands at £1,283 per month, around 6% or £86 lower than the average new let. That gap was 12% in June 2023. The convergence reflects landlords aligning renewal rents more closely with current market conditions.

Medium-term outlook: modest gains ahead

Despite near-term weakness, Hamptons expects rental growth to resume over the medium term. Forecasts have been trimmed slightly, with rents now expected to rise by 3.5% in 2026 and 3.0% in 2027.

A shortage of rental homes remains a long-term challenge. There were 34% fewer homes available to rent in the first half of 2025 than in the same period of 2019. Planned regulation, including the Renters’ Rights Bill and changes to minimum EPC requirements, may also limit future supply and add to landlords’ costs.

Cumulatively, Hamptons projects that rents will rise by 18% between the end of 2022 and the end of 2027, the equivalent of an additional £2,650 per year for the average tenant.

“The rental market softened more quickly than we anticipated towards the end of last year,” said Aneisha Beveridge, head of research at Hamptons. “What started in London has now spread more widely, with rents falling in multiple regions and growth slowing elsewhere. A combination of falling mortgage rates and a weaker labour market is reshaping the market. More affluent renters are becoming first-time buyers while others are hitting affordability limits.”

She added, “This is not the end of rental growth. A structural shortage of rental homes still exists, and regulatory change is likely to add further pressure. With fewer new homes coming into the sector, the medium-term outlook remains one of steady upward pressure on rents.”

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