Rents are up £3,240 annually compared to three years ago with number of homes to let 'scarce'

• Rents are now rising at slowest pace for over three years 

Renters are paying £270 more each month than they were three years ago, according to new Zoopla figures.

The average annual cost of renting now stands at £15,240, an increase of £3,240 compared to three years ago, the property portal revealed. 

This means the typical tenant has seen a 27 per cent increase in the cost of renting since November 2021 - outpacing the 19 per cent growth in earnings over the same period.

Richard Donnell, executive director at Zoopla said: 'Private renters moving home have faced rents rising faster than earnings over the last three years. 

'The number of rented homes hasn't grown since 2016 creating scarcity for renters at a time when demand has boomed on a strong labour market and the rising cost of home ownership. 

'The ambitions to expand home building are important as the quickest way to ease the pressure on renters is to boost the supply of private and social rented homes. 

'Private landlords will continue to play an important role and should be encouraged to remain in the market.' 

Are rents reaching a ceiling?

The near double digit annual increases recorded over the past three years in rents appears to be reaching somewhat of a ceiling.

Average rents for new lets are 3.9 per cent higher over the last year, the lowest rate of growth since August 2021 and down from 9.1 per cent a year ago.

The slowdown is in part down to a narrowing in the imbalance between supply and demand over 2024.

Tenant demand is down by almost a third compared to this time last year while the number of rental homes on the market is up by 12 per cent. 

Growing affordability pressures on renters in areas with high rents is also keeping a lid on prices spiralling even further.

This is why London has recorded the greatest slowdown, with average rents 1.3 per cent higher over the last year, down from highs of 8.7 per cent a year ago, according to Zoopla.

London also has the highest rents, averaging £2,190 per month which is 70 per cent higher than the UK average.

Adam Jennings, head of lettings at Chestertons, says that on top of prices reaching record highs, they've been seeing an uptick in people leaving the private rental sector and getting on the property ladder.

'Over the past few years, London rents have been driven to all-time highs by an increasing number of tenants unable to buy due to high property prices in London and high mortgage rates. 

'Now that interest rates have fallen and changes to stamp duty are looming, aspiring homeowners feel more motivated to take their first step on the property ladder. 

'As a result, London's rental market is rebalancing and providing more favourable conditions for remaining renters.'

Where are rents still flying high? 

In more affordable regions of the UK rents have continued to record dramatic increases.

Rents have risen 10.5 per cent year-on-year in Northern Ireland and 8.7 per cent in the North East of England.

These two areas have the lowest average rents of £801p/m and £732p/m respectively.

Outside of London, rents are rising fastest in pockets outside major cities such as Rochdale, up 11.9 per cent, Blackburn, up 10 per cent) and Birkenhead up 9 per cent. 

This largely reflects 'catch-up' rental growth as renters seek out areas with better value for money in and around major cities. 

In some locations it's all about supply meeting demand. 

For example, rental growth has stalled in Nottingham. It is the only city where the supply of homes available to rent has jumped over the last year, providing renters with more choice. 

As a result rents are unchanged over the last year, having risen 10.4 per cent the previous year. 

What next for the rental market in 2025?

Despite more available homes than a year ago, the number of homes for rent remains below pre-pandemic levels in all regions apart from the East Midlands.

Zoopla says private landlords continue to sell off rented homes at a steady pace in the face of greater regulation and higher borrowing costs, despite what have been sizable increases in rents. 

However, Zoopla believes that the peak of the private landlord sell-off has now passed. 

It's now a question of when market conditions look right for landlords to increase investment and expand rental supply. This is still some way off and requires lower base rates and higher rental yields.

One bright spot has been more corporate investment in new build rented homes - but even in these instances, the pace of new development has slowed in the face of higher borrowing costs and more regulation.

Zoopla expects a continued mismatch between supply and demand with average rents for new lets to increase by four per cent over 2025 taking the annual rental cost to £15,850. 

Rental growth in London and larger cities will lag behind the UK average as a result of growing affordability pressures and further modest growth in supply.