Rents to rise as supply pressure continues – RICS

Tenant demand in the private rented sector weakened again in December, while the flow of new landlord instructions remained sharply negative, the latest RICS survey reveals.

The Royal Institution of Chartered Surveyors says tenant demand is at a net balance of -27%, with new instructions from landlords even weaker at -39%.

The imbalance is leading to higher rents, with average rent growth forecast at about 3% over the next 12 months.

The December data points to a tentative improvement in this year’s prospects, thanks to falling interest rates and improving surveyor sentiment.

Tenant demand is strong

Commenting on the RICS’ tenant data, Tom Bill, the head of UK residential research at Knight Frank, said: “Tenant demand has been relatively strong in the lettings market following the Budget and the clarity it brought.

“However, supply is still under pressure as more landlords sell up due to the proliferation of red tape and taxes in recent years.

“The big test in 2026 will be the Renters’ Rights Act, with some prospective landlords sitting on their hands to watch how it plays out and whether the court system becomes overwhelmed.”

He adds: “As supply comes under pressure, it means upwards pressure on rents will persist, which is exactly the sort of unintended consequence that governments worry about when they design new legislation.”

Housing confidence growing

However, the wider housing market ended 2025 in subdued form, although confidence is beginning to rebuild.

Buyer enquiries stayed negative at -24% and agreed sales at -19%, both reflecting a year marked by hesitation.

Even so, each measure edged higher month on month, hinting that the slowdown is easing.

Expectations for sales over the next three months jumped to +22%, the strongest reading since October 2024.

Plus, the twelve-month projections improved further, with +34% of respondents anticipating higher transaction levels, more than double November’s figure.

That is down to lower interest rates and greater post-Budget clarity.

House prices to drift

New vendor instructions levelled out at a net balance of 0%, ending a prolonged slide.

However, low appraisal volumes suggest that any meaningful increase in available stock will emerge gradually rather than quickly.

House prices continued to drift lower overall, with a national balance of -14%, though the pace of decline is slowing.

London recorded a balance of -42% and the South East -32%, while Scotland and Northern Ireland stayed in growth territory.

Short-term house price expectations are now close to flat, and +35% of respondents expect values to rise over the coming year, the most positive view since late 2024.

Market sentiment improving

Tarrant Parsons, the head of market research and analysis at RICS, said: “The UK residential market remains in a prolonged soft patch, with December’s survey recording a sixth consecutive month of negative momentum in buyer enquiries.

“That said, there are tentative signs of a shift in sentiment beneath the surface.

“Near-term sales expectations have strengthened, and the 12-month outlook has edged into more positive territory.”

He added: “The key test for 2026 will be whether borrowing costs ease on a sustained basis.

“If so, this could provide the catalyst needed to drive a recovery in buyer demand.”