The impact of inflation on UK rental prices in 2025

Inflation continues to shape the UK rental market in 2025, creating challenges and opportunities for landlords and tenants alike. With fluctuating interest rates and evolving government policies, staying informed helps you manage the changing market with ease. 

How inflation impacts landlords

As a landlord, you’ve likely noticed your operating costs increasing. From mortgage repayments to routine maintenance and insurance premiums, inflation affects nearly every aspect of property management.

The rising cost of materials has made property repairs more expensive, with building materials up 12% since 2023. Meanwhile, service providers like plumbers and electricians have increased their rates to match inflation.

Smart moves for landlords:

• Lock in predictable payments with a fixed-rate mortgage to protect against interest rate volatility
• Improve energy efficiency through the Great British Insulation Scheme – this not only makes your property more attractive but can reduce bills by up to £350 annually
• Consider longer-term leases to maintain stable income and reduce void periods
• Diversify your rental options by exploring short-term lets or co-living spaces to match changing tenant demands

According to recent data from Dataloft, properties with energy ratings of C or above command 6% higher rents on average than less efficient properties, making green improvements a worthwhile investment.

How inflation affects tenants

For tenants, affordability remains the primary concern. The cost of living increase has made renting more challenging, with the average UK tenant now spending 31% of their income on rent.

The good news is that UK housing benefit eligibility has expanded in response, potentially helping more people who qualify. The Local Housing Allowance has also been adjusted to better reflect actual market rates in many areas.

Tips for tenants:

• Open a conversation with your landlord about rent – many prefer keeping reliable tenants over risking void periods
• Explore shared housing options, which can reduce costs by 30-40% compared to renting alone
• Check your eligibility for government support schemes, including the recently expanded First Homes initiative
• Consider location carefully – areas just 2-3 miles from city centres often offer rents 15-20% lower

Government policies and their impact on rental prices

The UK government has introduced several measures to balance the rental market and improve conditions for both landlords and tenants.

The Renters’ Rights Bill, expected to come into effect by autumn 2025, will enhance tenant security by banning no-fault evictions and limiting rent increases to once annually. This provides more stability for tenants while maintaining landlords’ ability to address genuine issues.

The Levelling-up and Regeneration Act 2023 aims to increase housing supply through planning reforms and investment in previously developed land. According to housing experts, these measures could help stabilise rents in high-demand areas over the next 2 to 3 years.

What landlords can do in 2025

To stay ahead of inflation and maintain profitability:

• Stay informed about regulatory changes through landlord associations and professional resources
• Invest in energy-efficient improvements – tenants increasingly value sustainability, with 63% saying they would pay more for energy-efficient homes
• Consider offering flexible rental terms to attract and retain quality tenants. Long-term renters are more likely to care for the property and reduce maintenance costs
• Review your insurance coverage regularly to ensure you’re adequately protected without overpaying

How tenants can handle rising rents

If you’re facing rent increases:

• Know your rights under the Renters’ Rights Bill to ensure fair treatment
• Explore government support options – often, eligible tenants aren’t claiming the support they’re entitled to.
• Create a realistic budget that accounts for all housing costs, including utilities
• Look into alternative rental arrangements such as build-to-rent developments which often include utilities and amenities in the monthly cost.

Will rent prices keep rising?

Expert projections suggest rental market trends will remain strong through 2025, though the pace of increases may moderate as government interventions take effect.

Regional variations will continue, with some areas seeing price stabilisation ahead of others. While it’s unlikely that rent prices will drop significantly nationwide, increased housing development and policy changes should help create more balance in certain areas.

Taking action

Despite inflation challenges, both landlords and tenants can successfully manage the rental market with the right approach. For landlords, focusing on property efficiency and tenant retention is more valuable than simply raising rents. For tenants, exploring all available options and understanding your rights puts you in a stronger position.

Talk to Smart Lettings for personalised advice on making the most of current market conditions, whether you’re looking to let a property or find your next home.