The latest survey from the Royal Institution of Chartered Surveyors (RICS) reveals ongoing supply pressures in the private rented sector, leading to forecast rent increases of around 3% over the next year. Despite a slight weakening in tenant demand and a sharp drop in new landlord instructions, market sentiment shows tentative signs of improvement, which landlords should monitor closely.

Tenant demand and landlord supply remain imbalanced

In December, tenant demand in the private rented sector registered a net balance of -27%, indicating a continued softening. More notably, new landlord instructions fell even further to a net balance of -39%, reflecting a significant reduction in rental property supply. This imbalance between demand and supply is a key driver behind rising rents, as fewer properties become available to meet tenant needs.

Tom Bill, head of UK residential research at Knight Frank, commented on the situation: “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.”

He further highlighted the potential impact of upcoming legislation: “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.” This cautious approach by landlords could further restrict supply, sustaining upward pressure on rents.

Implications for landlords and agents

For landlords, the current market conditions suggest an opportunity to review rent levels in light of supply constraints. The forecast average rent growth of approximately 3% over the next 12 months indicates that upward adjustments may be justified, particularly in areas experiencing stronger demand. However, landlords should remain mindful of tenant affordability and local market conditions to avoid excessive rent increases that could lead to longer void periods.

Letting agents should prepare for continued demand from tenants but also advise landlords on the risks associated with tightening supply and potential legislative changes. Clear communication about market trends and regulatory developments will be essential to managing landlord expectations and tenant relations effectively.

Housing market confidence shows cautious improvement

While the private rented sector faces supply challenges, the wider housing market ended 2025 on a subdued note. Buyer enquiries and agreed sales remained negative at -24% and -19% respectively, reflecting ongoing market hesitation. Nevertheless, both indicators improved slightly month on month, suggesting the slowdown may be easing.

Expectations for sales over the next three months rose to +22%, the strongest since October 2024, while 34% of respondents anticipate higher transaction levels over the next year—more than double the figure recorded in November. These improvements are attributed to lower interest rates and greater clarity following the Budget.

House prices continue to drift but outlook is stabilising

New vendor instructions stabilised at a net balance of 0%, ending a prolonged decline in available stock. However, low appraisal volumes indicate that any meaningful increase in property supply is likely to be gradual rather than immediate.

House prices overall continued to drift lower, with a national net balance of -14%, though the rate of decline is slowing. Regional variations persist, with London and the South East experiencing sharper falls (-42% and -32% respectively), while Scotland and Northern Ireland remain 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 optimistic outlook since late 2024. This stabilisation may encourage some landlords to consider expanding their portfolios if borrowing costs remain favourable.

Market sentiment and outlook for 2026

Tarrant Parsons, head of market research and analysis at RICS, noted: “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.”

He added that near-term sales expectations have strengthened and the 12-month outlook has edged into more positive territory. Parsons emphasised that “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.”

Looking ahead: support for landlords

In response to evolving market conditions, the Landlord Association (TLA) is launching a new Trusted Partners Hub in Q1 2026. This initiative will feature verified and approved service providers selected to support landlords, tenants, and property management businesses. Legal, trades, insurance, financial, mortgage, tenant screening, and other relevant service providers are invited to register their interest to become TLA service partners.