Rental market cools as first-time buyer numbers surge

The private rented sector is experiencing a slowdown, with tenant registrations plummeting 17% in May compared to 2024, research reveals.

According to the Hamptons monthly lettings index, this marks the twelfth consecutive month of declining demand, with registrations now 28% below 2019 levels.

The main reason for the drop is that more tenants are becoming homeowners, particularly in London and Scotland.

That’s where first-time buyers now outnumber those seeking to rent – a trend that hasn’t been seen in at least a decade.

A cooling PRS has also been highlighted by Zoopla which says that annual rent growth is at its lowest since July 2021.

Reducing rental demand

Aneisha Beveridge, the head of research at Hamptons, said: “In a similar trend to the years following the last economic downturn, falling interest rates have reduced the pace of rental growth.

“Landlords rolling off short-term fixed-rate mortgages are now seeing their monthly payments fall, reducing the need to pass on further costs to tenants.”

She added: “At the same time, lower mortgage rates are changing the arithmetic for tenants who are thinking about buying.

“While rates remain high relative to pre-Covid times, three years of above-inflation rental growth mean that for most, buying remains cheaper than renting.

“This has boosted first-time buyer numbers and reduced demand in the rental sector.”

Tenants buy homes

Hamptons says that in the capital, first-time buyers represent 50.3% of new buyer registrations, up 2% from last year, despite a dip in demand from other buyers.

Falling mortgage rates have made purchasing more affordable than renting for those with at least a 10% deposit, driving this change.

In 2025, the ratio of tenants to first-time buyers has dropped to 1.5:1, nearly half the level seen when mortgage rates peaked in 2022 and 2023.

Back in 2017, this ratio stood at 5.9:1, highlighting the growing prominence of first-time buyers.

Landlords will consider political risk

Ms Beveridge said: “It has taken the best part of two years for the pace of rental growth to fall from double digits down to 1.5%.

“This means that rents are now rising at a rate that’s close to their long-term average and suggests that the era of rapid rental growth is behind us for now.”

She adds: “That said, rental growth is unlikely to cool much further.

“While falling interest rates should take the sting out of rental growth over the next few years, landlords will likely continue to price in political risk.”

Rents rise by 1.5%

The reduced demand is easing pressure on rents, with the average cost of a newly let property rising by just 1.5% over the past year to £1,366 per month.

That’s a sharp decline from the 5.1% annual increase recorded in May 2024.

This growth rate mirrors 2013 levels, when rents rose by 1.6%.

In London, rents have fallen 0.5% year-on-year, dragging the national average down by 1%.

Rental supply rises

Meanwhile, the supply of rental properties has grown, with 5% more homes available in May than last year.

This increase, coupled with weaker demand, has contributed to slower rent rises, Hamptons says.

However, tenants renewing contracts face steeper rent rises, with renewal rents up 3.7% to £1,267 per month, though still £99 less than new lets.

Regionally, rent growth remains strongest in the North and Midlands, while affluent areas have seen tenant demand fall 50% more than less affluent regions, reflecting the shift towards homeownership among wealthier tenants.