Rents have risen by £3,240 a year compared to three years ago and the number of rental properties is “low”.

Tenants are paying £270 more each month than they were three years ago, according to new figures from Zoopla.

The average annual rental cost now stands at £15,240, an increase of £3,240 compared to three years ago, the property portal revealed.

This means that the typical tenant has seen a 27 percent increase in the cost of rent since November 2021, outpacing the 19 percent growth in profits over the same period.

Richard Donnell, chief executive of Zoopla, said: “Private renters moving in have faced rents rising faster than incomes over the past three years.

‘The number of rented homes has not increased since 2016, creating shortages for renters at a time when demand has soared due to a strong labor market and the rising cost of home ownership.

‘Ambitions to expand housing construction are important as the quickest way to relieve pressure on tenants is to increase the supply of private and social rental housing.

“Private landlords will continue to play an important role and should be encouraged to remain in the market.”

Are rents reaching a ceiling?

The nearly double-digit annual increases seen in rents over the past three years appear to be reaching something of a ceiling.

Average rents for new rentals are 3.9 percent higher over the past year, the lowest growth rate since August 2021 and down from 9.1 percent a year ago.

The slowdown is partly due to a reduction in the imbalance between supply and demand during 2024.

Tenant demand is down almost a third compared to the same period last year, while the number of rental homes on the market has increased by 12 per cent.

Increasing affordability pressures on renters in high-rent areas are also holding back prices from soaring further.

This is why London has seen the biggest slowdown, with average rents 1.3 per cent higher over the past year, down from highs of 8.7 per cent a year ago, according to Zoopla.

London also has the highest rents, averaging £2,190 per month, 70 per cent higher than the UK average.

Adam Jennings, head of lettings at Chestertons, says that as well as prices hitting record levels, they have been seeing a rise in people leaving the private rental sector and getting onto the property ladder.

‘In recent years, rents in London have reached record highs due to an increasing number of tenants unable to buy due to high London property prices and high mortgage rates.

‘Now that interest rates have fallen and changes to stamp duty are looming, aspiring homeowners are feeling more motivated to take the first step on the property ladder.

“As a result, London’s rental market is rebalancing and offering more favorable terms for remaining tenants.”

Where rents continue to rise?

In the most affordable regions of the UK, rents have continued to see spectacular increases.

Rents have increased by 10.5 per cent year-on-year in Northern Ireland and 8.7 per cent in the north-east of England.

These two areas have the lowest average rents of £801p/m and £732p/m respectively.

Outside London, rents are rising most rapidly in areas outside major cities such as Rochdale (up 11.9 per cent), Blackburn (up 10 per cent) and Birkenhead (up 9 per cent).

This largely reflects ‘catch-up’ rental growth as renters seek better value for money areas in and around major cities.

In some places it is about supply meeting demand.

For example, rental growth has stagnated in Nottingham. It is the only city where the supply of housing available for rent has increased over the last year, offering renters more options.

As a result, rents have remained unchanged over the past year, having increased by 10.4 per cent in the previous year.

What’s next for the rental market in 2025?

Despite more homes being available than a year ago, rental housing numbers remain below pre-pandemic levels in all regions except the East Midlands.

Zoopla says private landlords continue to sell rented homes at a steady pace in the face of increased regulation and higher borrowing costs, despite what have been considerable increases in rents.

However, Zoopla believes that the peak liquidation of private owners has already passed.

It is now a question of when market conditions will be right for landlords to increase investment and expand rental supply. This is still some way off and requires lower base rates and higher rental yields.

One bright spot has been increased corporate investment in new-build rental housing, but even in these cases the pace of new development has slowed in the face of higher borrowing costs and greater regulation.

Zoopla expects the mismatch between supply and demand to continue and average rents for new lettings to rise by four per cent throughout 2025, taking the annual cost of renting to £15,850.

Rental growth in London and larger cities will lag behind the UK average as a result of increasing affordability pressures and further modest supply growth.