A recent report by Zoopla has revealed that rental inflation has been running well ahead of earnings growth in the residential rental market, although the report did indicate that there has been a slight decrease in rental inflation, dropping down to 11.1% from its peak of 12.3% during the middle part of 2022.

As stated in the report, strong labour market conditions and record immigration levels were key factors driving demand during 2022. While demand for rental properties is expected to remain higher than average in 2023, it is anticipated to be lower than in the previous year.

"The demand for renting was incredibly strong in 2022 helping push rents up by 11%. Rents will continue to rise over 2023 but at a slower rate as demand moderates and affordability pressures start to bite harder on renters,” according to Richard Donnell, executive director of Zoopla.

Interestingly, the supply of private rented homes has only increased by a barely significant 1% since 2016. This, coupled with higher mortgage rates, has reduced the attraction of investing in property for landlords and has led to a reduction in new investments.

However, the report does suggest that landlords, in their quest for yield, will consider renting out properties in different sectors of the private rental market. Nevertheless, growth in the overall rental supply is expected to remain weak in 2023, and rental inflation for new lets projected to slow down to 4-5% by the end of the year.

Landlords in central London and other cities have been hardest hit by ever-increasing costs and regulation, and so the weakening market might be even more rapidly in these areas.

According to Richard Rowntree, Paragon Bank's managing director of mortgages: “Tenant demand shows no sign of abating and remains at 51% above the five-year average. With Zoopla’s analysis showing only a 1% increase in private rental housing supply over the past seven years, the chronic supply/demand imbalance we see today will only worsen unless the stock of rented homes increases."

"This is clearly something the current Government, or the next, will need to consider as it develops housing strategy; landlords are an important element of the housing mix and should be incentivised to maintain or grow their property portfolios through a fair and proportionate regulatory and fiscal regime.”