The UK's private rental market has long grappled with the issue of chronic supply-demand mismatch, resulting in an annual increase of one-third in newly rented rents, reaching a peak of £3,360.According to forecasts by the UK property platform Zoopla, this trend will change in 2024, with a substantial slowdown in rent growth.

This shift is attributed to worsening affordability and a slight improvement in the supply of rental housing, causing rental demand to begin to slow. Simultaneously, rents in some markets have been set too high, as tenants display resistance to higher rental rates.Last year, UK rents increased by 9.7%, a decrease from the previous year's 11.9% but still higher than the 7.9% growth in earnings.

Over the past three years, the UK rental market has remained robust, primarily driven by four factors: the reopening of the economy and international travel after the mid-2021 pandemic restrictions; a robust labor market with good employment growth; higher mortgage rates since the fall of 2022 making home purchases more expensive; and record levels of immigration, particularly a significant number of overseas students. The combined impact of these factors has fueled a continuous increase in rental demand in the UK.

However, changing signs related to these factors indicate a slowing growth in rental demand. The one-off effects of the pandemic are diminishing, employment growth is slowing, early indications show a slowdown in income growth, and mortgage rates have slightly declined, making first-time buyers more inclined to purchase a home rather than pay the currently high rents.

Zoopla's rental index shows that rental demand gradually slowed in the second half of 2023, with the year-on-year decline in rental inquiries for each rentable property, reaching its peak in the summer of 2022 and now entering the usual winter slowdown. This trend is expected to continue in the first few months of 2024.

While rental demand in the UK remains 32% higher than the average level of the past five years, demand in London has seen a 20% year-on-year decrease. Zoopla believes that the market will be more balanced than at any time in the past three years. Rental asking prices are decreasing to attract more tenants.

Since the second half of 2020, the number of homes with reduced asking rents remains consistent with that time when the pandemic impacted rental demand, resulting in increased supply and slowed rent growth. The magnitude of rent reductions is most significant in London, with 10% of listings reducing prices by 5% or more in November 2023, compared to 7% in other parts of the UK, the highest level in five years.

By 2024, it is anticipated that rents in the UK will increase by 5%, with London experiencing only a 2% increase. While the rental market will continue to cool, and rent growth has peaked, a shortage of supply will lead to a nationwide increase in rents, with lower landlord investments. Zoopla's report highlights that the UK's rental market will face new changes and challenges in the next three years.

As the government tightens control over the construction and sale of new homes, more people may choose renting over buying. Additionally, with joint efforts from the government and the industry, the availability of more high-quality rental properties in the UK rental market is expected to increase in the next three years.