Landlords warn Section 24 and rising BTL rates could accelerate market exits
UK rental supply fell for the first time in three years in the 12 months to July 2026, pushing rents up 2.6% and squeezing tenants shut out of homeownership by rising mortgage costs, according to Zoopla's latest Rental Market Report.
The number of homes available to rent dropped 3% year-on-year, reversing a three-year recovery that had helped ease rent rises, Zoopla said. Rents are on track to climb 4% to 5% by the end of 2026, up from a low of 1.6% growth in February.
Higher rates lock in renters, tighten supply
Rising mortgage rates are central to the shift. The average buyer in London now needs an extra £35,500 for a deposit to offset higher rates, nearly double the £18,200 needed nationally, Zoopla found. That has kept more would-be first-time buyers renting, lifting enquiries per listing to 5.3, the highest in 22 months.
The pattern aligns with broader mortgage-market movement. Average two- and five-year fixed buy-to-let rates rose to 5.32% and 5.70% respectively in the week to Sept. 8, up from 5.29% and 5.66% a week earlier, as HSBC and NatWest repriced upward, Moneyfacts data showed. Separately, UK Finance is forecasting roughly 1.8 million fixed-rate mortgages, including investment loans, will mature in 2026.
Zoopla's data shows inner London supply has fallen 13% while demand has risen, pushing rental growth in those postal areas to 3% to 4%. Scotland is registering the same scarcity-driven pattern despite having no Renters' Rights Act in force, which Zoopla said indicates the legislation is not the primary driver of higher rents.
Richard Donnell, executive director at Zoopla, said higher mortgage rates "are not just impacting the sales market, they are keeping more would-be first-time buyers in rented homes for longer, reducing available supply just as the seasonal upturn in demand gets into full swing." He added that growing the number of homes for rent through increased investment "is the most sustainable route to boosting choice for renters and ensuring stability in rent levels over the long run."
Allison Thompson, chief lettings officer at LRG, said tenant demand is strong but "the real interest lies behind the headline figures, specifically regarding the relationship between the sales and rental markets," noting that falling property prices in London and the South East "substantially improve yields" for landlords.
Tax treatment compounds the squeeze
Greg Tsuman, managing director for lettings at Martyn Gerrard, said Section 24 tax rules can leave landlords with a fraction of their rental income. He calculated that a London landlord earning £9,000 before tax on a £600,000 property can face a £7,200 tax bill, "an effective tax rate of 80% on the actual profit." Tsuman said landlords are "anticipating yet another tax rise coming in 2027," and warned that a recovering sales market could release "pent up supply" of landlords currently unable to sell at their preferred price.
Nathan Emerson, chief executive of Propertymark, said the data "reinforces the importance of increasing the supply of good-quality homes for rent," adding that landlords "continue to face significant borrowing, operating and regulatory costs that can make investment more challenging."
Jeremy Leaf, a north London estate agent and former RICS residential chairman, said some landlords are selling when tenants end fixed-term agreements, citing concerns "about the time it is likely to take to gain vacant possession" under the Renters' Rights Act.
Rent growth is running roughly twice the national rate in markets below £750 per month, at 5.4%, with Dumfries (+11.3%) and Carlisle (+8.8%) recording the UK's fastest increases, driven by scarcity rather than demand, Zoopla said.
