Rents are set to rise 5% by the end of 2026. Here’s what it could mean for homelessness

Property website Zoopla has warned tenants will see rents surge by the end of 2026 as the number of rental homes on the market fell for the first time in three years.

Zoopla’s analysis found UK rents rose by an average of 2.6% in the 12 months up to July and are on track to increase 5% annually by the end of the year.

The news comes just four months after the Renters’ Rights Act came into force in England. The new legislation sparked warnings from landlords that many would leave the sector and it would cause rents to rise.

But that’s not the case, Zoopla experts said. Instead, there has been a 3% fall in the number of homes to rent due to landlords facing higher costs and regulation.

Meanwhile, higher mortgage rates have put off renters from buying their own home, driving up the number of enquiries for properties to the highest point in two years.

Richard Donnell, executive director at Zoopla, said: “Higher mortgage rates are not just impacting the sales market, they are keeping more would-be first-time buyers in rented homes for longer, reducing available supply just as the seasonal upturn in demand gets into full swing.  This is pushing rents higher again, mainly in regions where the availability of homes for rent has declined the most, although affordability remains an important constraint on how far rents can rise.

“The upward pressure on rents is greatest in London, where higher mortgage rates have had the biggest impact on home buyers, and in more affordable rental markets where renters have greater capacity to absorb increases. “

Where rents are rising

Rents have been continuing to hit record highs in recent years but the rate at which they have been rising has been slowing.

Zoopla said the number of homes available to rent started to fall for the first time in three years in May this year – coinciding with the Renters’ Rights Act’s arrival.

There are now 3% fewer homes for rent across the UK than a year ago. There are wide regional variations but areas with the biggest declines in homes for rent are typically those registering faster rental growth than last year.

The Renters’ Rights Act only applies to England but Zoopla found Scotland experienced a similar trend of fewer homes to rent and higher rent inflation.

Inner-city London is facing the ‘greatest rental market squeeze’, Zoopla found, with a rise in demand and fewer homes for rent pushing rents higher. The average home buyer needs an extra £35,500 in London to offset mortgage rates and cover a deposit. 

London and the Yorkshire and Humberside regions have seen the biggest increase in rental growth over the last year with above-average falls in the number of homes for rent, down 6% and 12% respectively. 

In contrast, Wales has seen the sharpest slowdown in rental growth with a 7% increase in the number of homes for rent, boosting choice for renters. 

But it was the areas with some of the cheapest rents that have seen the biggest rises.

Areas with average rents below £750 a month saw rents grow at double that of the national rate, up 5.4% compared to 2.6% nationally.

Smaller towns in northern England and Scotland with fewer landlords and less new investment are seeing rents rise at the fastest rate. Dumfries saw an 11.3% annual rise in rents while tenants were paying £8.8% extra Carlisle over the year, making them the two postal areas with the fastest increases. 

Zoopla said renters have more capacity to absorb rent rises before hitting an affordability ceiling in cheaper areas, whereas in the most expensive areas, rents are already stretching what tenants can pay, capping how much further rents can increase. 

What rising rents could mean for homelessness

Andy Burnham’s government has already ruled out intervening in the private rented sector with housing secretary Angela Rayner confirming the administration would not pursue rent controls in England.

Rayner argued that the Renters’ Rights Act offers renters more protection from rent rises during tenancies, limiting the number of times a landlord can raise rents to once per year and giving tenants greater opportunity to challenge increases.

Last week rent campaigners held a protest outside parliament calling for rent controls. The Scottish government is looking to introduce rent controls.

Holly Williamson, chief executive of Generation Rent said: “Homes are the foundations of our lives. But when we are forced to spend too much of our income on rent, it means children are going to school hungry or older renters who can’t afford to turn the heating on.  

“Many renters are already paying more than we can afford, so this predicted surge in rents would plunge even more people into poverty, leaving local councils to pick up the pieces. The government can and must act urgently, by introducing a limit on how much landlords can raise the rent, making sure that rent increases don’t soar above our wages.”

Rising rents could see homelessness rise. 

Local housing allowance (LHA) rates have been frozen since 2024. LHA determines the levels of housing benefit in a local area and are supposed to represent the bottom 30% of the market.

Rising rents mean that is no longer the case: research from Crisis and Citizens Advice earlier this year found that just 2% of homes on the private rental market were affordable for low-income households receiving housing benefit.

It remains to be seen whether LHA rates will rise next spring. Chancellor John Healey may choose to raise them at next month’s autumn statement.

Read more:

• The Conservatives want to cut housing benefit to fund defence spending. But will it work?
• Just two out of every 100 rental homes are affordable on housing benefit: ‘An impossible situation’
• What could be in chancellor John Healey’s autumn budget and what could it mean for you?

LHA rates may become a thorny political issue for Burnham, particularly if he unfreezes them and the housing benefit bill rises as a result.

The Conservative Party has said it would cut local housing allowance rates to cover 10% of private rental properties, arguing that it would save £4 billion to fund defence spending.

Kemi Badenoch’s plan, however, does not account for rising costs of homelessness following the proposed cut. Councils in England are already spending £2.8bn a year on homelessness and the Local Government Association projects that will rise to £4bn by the end of the decade.

Burnham rejected the proposal and his argument in favour of social security sparked controversy.

“I do not think that taking £4 billion out of housing benefit is going to get the right consensus around this issue,” said Burnham at prime minister’s questions last week. “That would create levels of homelessness in this country that we would not have seen before, with hundreds of thousands of children in temporary accommodation.

“I say that, yes, we do everything to support our national security, but it cannot come at the expense of social security.”

How to avoid rising private rental costs and homelessness in the future?

Nathan Emerson, CEO at Propertymark, which represents property agents, said the “right conditions” are required to encourage landlords to invest for the long-term.

“Increasing supply must remain a priority if we are to give tenants greater choice, improve affordability and create a more stable rental market,” Emerson added.

But only more social and council housing to reduce the reliance on private rented accommodation for low-income households can make a difference in the long-term – as Burnham has promised to deliver.

Do you have a story to tell or opinions to share about this? Get in touch and tell us more. 

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