Landlords continued to exit the UK lettings market in December, driving rents higher as the supply squeeze intensified despite weakening tenant demand.
New landlord instructions recorded a net balance of -39% in December, according to the latest RICS UK Residential Market Survey. Tenant demand also fell, registering -27%, but the mismatch between supply and demand means rents are forecast to grow by around 3% over the next twelve months.
The lettings crisis comes as the broader housing market showed tentative signs of recovery, with forward-looking sentiment turning sharply positive despite subdued current activity.
Sales
Buyer demand and agreed sales remained negative in December, with new buyer enquiries at -24% and agreed sales at -19%. Both measures improved slightly on the previous month, however, suggesting the downturn may be losing momentum.
The shift came in future expectations. "Near-term sales expectations have strengthened, and the twelve-month outlook has edged into more positive territory," said Tarrant Parsons, head of market research and analysis at RICS. "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."
Sales expectations over the next three months rose to +22%, the strongest reading since October 2024. Looking twelve months ahead, optimism strengthened further to +34%, more than double the level seen in November. Surveyors attributed the improved mood to easing interest rate expectations and the clearing of Budget-related uncertainty.
Supply
Supply conditions stabilised after months of decline. New vendor instructions flattened to a net balance of 0% in December, though low appraisal activity suggests any meaningful increase in stock will take time to materialise.
House prices continued to edge down nationally, with a net balance of -14%, but the trend is moderating. Regional divergence remains stark. London recorded -42% and the South East -32%, while Scotland and Northern Ireland continued to show growth.
Short-term price expectations improved to near-flat levels. Looking ahead twelve months, +35% of respondents now expect prices to rise, the most upbeat outlook since late 2024.
Parsons noted that 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." He added that "there are tentative signs of a shift in sentiment beneath the surface."
With interest rates expected to fall further and confidence rebuilding, the survey suggests the market may be turning a corner heading into 2026.
“The slowdown in lettings activity arrived a little earlier than usual in December. Some aspiring first-time buyers were clearly awaiting the outcome of the Budget before giving notice on lettings’ contracts and taking the plunge," comments former RICS residential chairman Jeremy Leaf.
He added, "The decision to take that step on the housing ladder has bolstered stock so partly compensated for landlords deciding to sell due to the imminent arrival of the Renters’ Rights Act. However, affordability concerns are keeping a lid on sharper increases in rents - at least for the time being.”
Tom Bill, head of UK residential research at Knight Frank said, “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."
"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. As supply comes under pressure, it means upwards pressure on rents will persist, which is exactly the sort of unintended consequence that governments worry about when they design new legislation.
