In this post, we explore the key factors driving continued demand in the lettings market, what this means for landlords and agents, and why professional tenant referencing and insurance protection have never been more important.
The UK rental market's strength isn't a temporary phenomenon, it's rooted in fundamental structural factors that show no signs of diminishing as we head into 2026.
Due to overwhelming demand due to general population growth, both legal and illegal immigration and a lack of new developments in recent years, the UK faces a persistent shortage of rental homes. According to recent data, the number of rented homes has remained broadly unchanged for a decade, while demand continues to grow. This supply constraint means that even as some market pressures ease, competition for quality rental properties remains elevated compared to pre-pandemic levels.
Demographic shifts are reshaping the rental landscape. Younger generations are renting for longer and are less likely to become landlords themselves, which means demand is rising while supply stays tight. With homeownership increasingly challenging due to high property prices and substantial deposit requirements, many professionals in their 30s and 40s are choosing to rent long-term rather than viewing it as a temporary housing solution.
While the UK is on track for more than 350,000 people to buy their first home in 2025, and there was a 20% increase in first-time buyer mortgages, this dynamic is actually supporting the rental market. As renters move up the property ladder, they free up rental properties for the next wave of tenants. This healthy turnover, combined with ongoing demand from those unable to buy, maintains strong rental activity.
The lettings market isn't uniform across the UK. Different regions are experiencing varying levels of growth, creating opportunities for savvy landlords and agents who understand local dynamics.
At a regional level, rents are rising fastest in the North East (4.5%) and the North West (3.2%). These regions offer better affordability compared to the South, leaving more headroom for rental growth. Cities like Manchester and Liverpool continue to thrive due to robust job markets, strong university populations, and improved infrastructure.
Areas such as Carlisle (8.1%), Chester (7.4%) and Motherwell (7%) are showing particularly strong rental growth. These lower-value markets demonstrate that the rental boom extends well beyond London and the major cities.
London's rental market is stabilizing after several years of rapid growth. Supply is slower in London (6%), which will keep more pressure on rental rates. While rental growth has moderated in the capital, demand remains solid, particularly for well-priced, quality properties in areas with good transport links and local amenities.
Despite regulatory challenges and increased costs, many landlords are doubling down on their property investments. According to UK Finance, over 58,000 new buy-to-let mortgages were approved in Q1 2025, representing a nearly 40% increase on the previous year. So why are investors staying committed to the sector?
The average size of portfolio for a mortgaged buy-to-let investor has risen from 3.5 properties to 5.0, with the gross yield they have bought into rising from 6.0% to 7.0%. For many landlords, especially those with larger portfolios or properties without mortgages, the rental market continues to deliver solid returns.
Recent data from HMRC shows that private individual landlords generated a total profit exceeding £25 billion on a turnover of £50 billion, with the average landlord reporting an income of £17,665 and a profit of £9,021 after expenses. These figures demonstrate that, for committed investors who manage their properties professionally, buy-to-let remains financially viable.
The rental sector is undergoing consolidation, with fewer landlords managing larger, more professional portfolios. While some smaller landlords have exited due to regulatory complexity and tax changes, this has created opportunities for professional landlords who are willing to adapt to the new landscape. The focus has shifted from opportunistic investing to professional, long-term rental provision.
Build-to-Rent (BTR) developments and institutional landlords are playing an increasingly important role. With high-amenity, professionally managed developments emerging across London and regional markets, institutional capital is flowing into the sector. These operators provide stable, long-term rental housing and are well-positioned to meet growing demand from tenants seeking quality, professional rental experiences.
Looking ahead, experts predict continued rental growth, albeit at a more moderate pace than the rapid increases seen in 2022-2023.
Zoopla expects rents for new lets to rise by 2.5 per cent over 2026, reflecting a more balanced market where supply is gradually improving while demand remains solid. Other forecasts
suggest rental growth of 3-6% depending on the region, with higher increases likely in areas where affordability leaves room for growth.
This moderation is actually healthy for the market's long-term sustainability. Rapid rent increases from 2022-2023 stretched affordability to its limits, but as rents are now rising more slowly than earnings growth, affordability is beginning to repair. This creates a more stable foundation for continued growth.
One notable shift in the market is that void periods lengthened in October, rising from an average of 16 days in September to 21 days. The time to rent a property has increased across all regions, ranging from 14 days in Scotland to 19 days in the West Midlands.
For landlords and agents, this means that presentation, pricing, and property quality matter more than ever. Well-maintained properties with good energy efficiency, modern fixtures, and competitive pricing will let faster and command better rents. Properties that are overpriced or poorly presented may take considerably longer to secure tenants.
In a market where rental demand remains strong but margins are tightening, choosing the right tenant from the outset has never been more important. With longer void periods and increased regulatory obligations, landlords and agents cannot afford to make poor tenant selection decisions.
Skipping tenant checks or cutting corners might seem like a way to speed up the letting process, but it exposes landlords to serious financial loss. Without verifying a tenant's financial stability, employment history, and rental background, you're taking unnecessary risks that can cost you dearly. Potential issues include rent arrears that can last months, property damage not covered by standard insurance, costly eviction proceedings, and time spent managing disputes.
LetHQ offers a range of referencing options tailored to your needs, including Express, Advanced, Guarantor, and Company references. Each option provides detailed insights into a tenant's reliability, ensuring you make informed decisions. With fast turnaround times—often results within an hour—you can move quickly on the best candidates without compromising on accuracy.
Trusted by other 8,000 agents from around the UK< we have been referencing tenants for over a decade and our market-leading platform combines cutting-edge software with trusted methods to deliver fast and accurate results. Often faster and with fewer caveats than open banking alternatives. All staff are ex-letting agents or landlords, trained to at least CIH Level 2 in housing, so you're getting expert support from people who understand the sector inside out.
Even with thorough tenant referencing, unexpected circumstances can arise. Rent guarantee insurance provides an essential safety net for landlords and agents, protecting rental income when tenants fall short.
As the lettings market continues to boom, landlords and agents must navigate an increasingly complex regulatory environment. From AML checks to Right to Rent verification and the upcoming Renters' Rights Act, compliance has never been more important.
From 14 May 2025, new UK rules made AML checks mandatory for letting agents for all tenancies, regardless of monthly rent. Every prospective tenant, guarantor, and landlord must be screened, including identity verification, checking for politically exposed persons (PEPs), reviewing UK sanctions lists, and screening against SDN/OFAC lists.
LetHQ's true AML check service makes compliance simple and cost-effective. Unlike some providers, we first verify the individual's identity before conducting mandatory checks, with FCA results delivered instantly in a secure PDF report, and our platform supports bulk uploads to help you bring existing tenant and landlord records up to date.
LetHQ offers fast, simple Digital Right to Rent Checks using advanced UK Government-certified Identity Document Validation Technology (IDVT). Our completely digital system eliminates paperwork, features state-of-the-art facial recognition technology with passive liveness detection, and provides immediate results directly to your inbox. This robust identity verification acts as a strong deterrent against tenancy fraud while ensuring you stay fully compliant.
As we head into 2026, the UK lettings market shows no signs of slowing down. Structural undersupply, demographic changes, and ongoing demand from renters unable or unwilling to buy ensure that rental properties remain in high demand. Regional variations offer opportunities across the country, from high-growth northern markets to London's stabilizing but still robust rental sector.
For landlords and agents, success in this market requires professional standards, proper tenant screening, and adequate insurance protection. The days of opportunistic landlord investment are over—today's rental market rewards those who approach it professionally, comply with regulations, and protect their investments with the right services.
The team at LetHQ is here to support your lettings business every step of the way. For more information on how we can support you and your business, visit LetHQ or call 0343 612 2233 today.
