UK Rents: The 2026 Forecast in a Cooling, Policy-Driven Market

The outlook for UK rents in 2026 is one of modest, uneven growth, anchored by a deep-seated housing shortage. Rightmove forecasts a further 2% rise in average advertised rents over the coming year. This projection rests squarely on the company's assessment of a chronic shortage of rental homes, a structural driver that continues to place upward pressure on prices despite recent softening.

That softening is the market's current reality. For the first time in five years, rents fell on a quarterly basis in the fourth quarter. Outside London, the national average fell by 1.1%, or £15 per month, to £1,370. London saw a more muted but still negative drop of 0.7%. This cooling trend capped a year of weak annual growth. For 2025, rents rose just 2.2% outside London and a meager 0.8% in the capital-both the weakest annual rates since 2018 and 2020, respectively.

The forecast, therefore, frames a clear tension. On one side is a market that has cooled, with competition for properties easing and supply improving relative to the pandemic peak. On the other is a fundamental imbalance: the total number of homes available to rent is still 33% lower than 10 years ago, creating persistent scarcity. The 2% growth forecast for 2026 suggests this scarcity will reassert itself, even as the frenetic competition of recent years recedes. The path forward is not one of explosive gains, but of moderate, uneven expansion, with growth likely to be more pronounced in regions where demand remains tight.

The Supply-Demand Engine: Cooling Activity vs. Persistent Shortage

The market's current state is defined by a clear contradiction. On one hand, the total number of available rental homes is 9% higher than last year, a tangible increase that has helped moderate price growth. On the other, the long-term picture reveals a severe and persistent shortage, with rental stock still down by a third compared with ten years ago. This tension between near-term supply relief and deep structural scarcity is the engine driving the forecast.

Activity levels illustrate this duality. While the fierce competition of the pandemic years has cooled, demand remains robust. Outside London, properties received an average of 16 enquiries in 2025, more than double the national average and a clear signal of tight local markets. This intense interest persists even as the overall balance between supply and demand has improved, explaining why rents have fallen only modestly on a quarterly basis.

The government's ambitious plan to deliver 1.5 million homes is a direct response to this shortage, aiming to reset the long-term supply curve. Yet the path to achieving this target is fraught with execution risks. There is a growing concern that the political imperative to accelerate delivery could compromise quality and long-term success. As one housing leader noted, the focus must shift from simply moving people into homes to creating well-planned and cared for places that support residents for decades. The risk is that a push for speed leads to housing numbers without the necessary infrastructure, services, and design to ensure these communities thrive.

For now, the market is caught between these forces. The 9% year-over-year supply increase provides a floor for rent growth, while the 33% decade-long deficit ensures upward pressure will return. The 2% forecast for 2026 hinges on this deficit reasserting itself, even as the frenetic activity of recent years subsides. The government's target offers a potential solution, but its success depends on navigating the difficult trade-offs between speed, quality, and long-term sustainability.

Mortgage Rates and Investment Signals: The Buy-to-Let Crosscurrent

The financial dynamics of the UK rental market are being shaped by a powerful crosscurrent. On one side is a headwind from financing costs, which have moderated but remain elevated. On the other is resilient investor appetite, even as new legislation promises to alter the long-term calculus for landlords.

The immediate pressure point is the cost of capital. The average mortgage rate for buy-to-let properties has fallen to 4.84%, a welcome relief from the 5.51% peak last year. This improvement in affordability should, in theory, stimulate new investment. Yet, the market's response is nuanced. Despite the higher rates, new buy-to-let mortgage approvals have risen 13% year-on-year, suggesting a core of investors remains committed. This resilience points to a market where the structural scarcity of rental homes continues to offer a compelling yield story, even with elevated borrowing costs.

The real uncertainty, however, is ahead. The Renters' Rights Act, set to take effect in May 2026, introduces a suite of new protections that will directly impact the landlord-tenant relationship. These include stricter rules on rent increases and enhanced security of tenure. For investors, this legislation introduces a new layer of operational complexity and potential cost, which could dampen long-term yield expectations. The act may make some properties less attractive to buy, even as current financing conditions support activity.

This creates a tension between near-term signals and longer-term outlook. The 13% rise in approvals shows that today's investors are acting on current fundamentals. But the impending policy shift means their calculus for 2026 and beyond is being rewritten. The market's ability to absorb this change without a sharp slowdown in investment will be a key test. For now, the crosscurrent is clear: a floor provided by improving mortgage rates is meeting a ceiling that may be lowered by new legislation.

Regional Disparities and Financial Impact

The market's uneven growth pattern is already translating into starkly different financial outcomes for landlords. In 2025, the North West saw rents climb 3.6%, while London's annual increase was a mere 0.8%. This bifurcation highlights a market where profitability is increasingly tied to geography. Landlords in high-demand regions may still see yield support, but those in softer markets face a direct squeeze.

That squeeze is being felt now. Cooling rent growth and a 9% year-over-year increase in supply are pressuring returns. The Goodlord Rental Index shows this clearly, with average rents in England hitting a nine-month low in December. While annual growth remains positive, the monthly dip of 2.5% underscores how quickly yields can fluctuate. For investors, this volatility is compounded by rising costs, creating a headwind that erodes the appeal of the rental asset class even as policy uncertainty looms larger.

The primary investment risk is, therefore, not a single factor but a convergence of policy pressures. The impending Renters' Rights Act introduces new operational costs and limits on rent increases, directly impacting cash flow. Simultaneously, the government's ambitious 1.5 million homes target is a long-term solution, but its execution is fraught. The risk is that a push for speed compromises quality and long-term viability, potentially flooding the market with poorly planned units that fail to support sustainable yields. For sector valuation, this creates a difficult calculus. The structural shortage provides a fundamental floor, but near-term policy shifts and supply-side execution risks introduce significant uncertainty that will keep valuations under pressure until clarity emerges.

Catalysts and Watchpoints for 2026

For investors and analysts, the 2% growth thesis hinges on a handful of key events and metrics that will validate or challenge the market's trajectory. The coming quarters will serve as a critical test of whether structural scarcity reasserts itself or if cooling pressures deepen.

First and foremost, monitor the quarterly rent growth data, particularly the first quarter of 2026. The market's recent softening is clear, with the national average rent falling 1.1% in the fourth quarter and hitting a nine-month low in December. The 2% forecast for the full year implies a rebound from these lows. A failure to see rents stabilize or accelerate in Q1 would signal that the supply overhang is more durable than anticipated, challenging the core scarcity narrative. Conversely, a clear uptick would support the view that the market is merely digesting a temporary supply pulse.

Second, track the pace of new rental stock entering the market. The 9% year-over-year increase in available homes is the primary offset to shortage-driven price pressure. Any acceleration in this supply growth would provide a stronger floor for rent stability, while a slowdown would tighten the balance and support Rightmove's forecast. The data shows a positive signal, with new buy-to-let mortgage approvals rising 13% year-on-year, indicating active investment. The key will be whether this translates into a sustained increase in the number of homes actually coming onto the rental market, not just being financed.

Finally, watch for government announcements on housing delivery targets and tax policy. The government's 1.5 million homes target is a long-term solution, but its execution is fraught. Any shift in delivery pace or quality standards will directly impact the supply curve. More immediately, the Renters' Rights Act, set to take effect in May 2026, introduces new operational costs and limits on rent increases. While not a direct catalyst for 2026 rent growth, its implementation will materially shift the risk/reward calculus for landlords, influencing investment decisions and potentially dampening long-term yield expectations. For now, the market is balancing near-term supply data against a policy landscape that is being rewritten.