The latest Rental Market Index from Hometrack has revealed that annual UK rental inflation for new lets has slowed to 5.4%, close to half the rate a year ago (10.2%), and the lowest for almost three years.

Rents are experiencing a more drawn-out slowdown compared to consumer prices and earnings. A sustained mismatch between supply and demand is keeping an upward pressure on rents, especially in more affordable locations.

Potential tax changes undermine rental supply
A scarcity of supply has been an ongoing feature of the rental market for the last three years. However, the number of homes for rent is 18% higher than a year ago as lower mortgage rates have enabled some renters to exit the rental market to buy homes. However, the number of homes for rent remains a quarter (24%) below the pre-pandemic average, limiting choice for renters.

Hometrack also said that there has been a steady flow of landlords selling in the last few years and the number of formerly rented homes for sale has increased slightly in July to 12.5% of all homes for sale. Speculation over possible tax changes impacting landlords in the Budget could well result in an increase in landlord sales this autumn, the report added, but much will depend on the timing of any potential tax changes.

The firm reported: ‘Any economic or policy changes that lead to further erosion in the stock of rented homes will simply sustain rental growth in the near term. In the absence of more rental supply, growing affordability constraints will be the only factor slowing rent rises, a trend already impacting low-income renters who are having to make compromises.’