Landlords are expected to enjoy stronger rental returns over the coming years, even as UK house price growth slows to a fraction of previous forecasts, according to analysis published by Knight Frank.
The property consultancy anticipates average rents will rise by 4% in 2025, followed by increases of 3.5% in both 2026 and 2027. The outlook reflects a tightening of rental supply as growing numbers of buy-to-let investors withdraw from the sector, citing mounting regulation, uncertain taxation, and the looming Renters’ Rights Bill.
Supply Constraints Intensify
Tom Bill, head of UK residential research at Knight Frank, suggested that policy changes risk compounding the pressures already faced by tenants. “We think rental value growth will be marginally higher in 2026 as government initiatives produce unintended consequences—again,” he said, warning that the forthcoming bill could add costs and complicate possession procedures, accelerating landlord exits.
Ben Beadle, chief executive of the National Residential Landlords Association, echoed these concerns. “Ever-growing regulation risks driving landlords out of the market and reducing choice for tenants,” he said. Rising compliance costs, particularly energy efficiency upgrades, alongside speculation about the extension of National Insurance to rental income, are among the chief factors prompting investors to sell.
House Price Expectations Downgraded
In contrast to the rental market, house price forecasts have been revised sharply downward. Knight Frank now predicts growth of only 1% in 2025, a significant reduction from its earlier projection of 3.5%, with a modest 3% increase expected in 2026.
Bill identified April as a low point for the housing market, when changes to stamp duty thresholds coincided with volatility in global financial markets. While the Bank of England has reduced rates three times this year, mortgage costs have barely shifted, with lenders having largely anticipated the moves.
According to UK Finance, mortgage approvals declined slightly in August, underscoring the fragile state of buyer demand. Sub-4% mortgage products have offered some relief, contributing to a modest recovery in sales activity after the spring downturn.
Cautious Sentiment Persists
Estate agents report subdued appetite among buyers, with new enquiries falling 8% year-on-year in August. Meanwhile, fresh listings have increased by 6%, much of the growth comprising properties released from the rental sector.
Sarah Mitchell, a letting agent in north London, observed that many long-term landlords are choosing to sell. “We’re seeing seasoned landlords cash in while prices are steady and before further regulation bites,” she said. Yet she added that competition among tenants remains “fierce,” allowing landlords who remain in the market to raise rents without deterring demand.