Fuel, migration and a softer jobs market: why some landlords may struggle to push rents higher
Some of you may have seen Tu, my business partner's video post recently. For those who prefer a more detailed breakdown, I have set out the longer-form version below.
For the last few years, many landlords have got used to one broad story that demand is strong, supply is tight, and rents can keep going up. Things are no longer what they once were which Zoopla's March 2026 Market Report corroborates.
Landlords are still dealing with rising repair costs, compliance costs, insurance premiums and finance costs. On top of that, the conflict in the Middle East has added another layer of uncertainty around energy, mortgage interest rates and inflation. The Bank of England said in March 2026 that the conflict had caused a significant increase in global energy and other commodity prices, with knock-on effects for household fuel and utility bills and wider business costs.
It is easy, in that environment, to jump to the conclusion that rents must rise as well. It is a difficult conversation I have been having with some landlords who remember back years gone by and believe the old model of operating was still sustainable.
Over the last three decades, the rental market has not moved in a straight line. There were clear boom phases: the buy-to-let expansion of the late 1990s and early 2000s, the post-2008 period when tighter mortgage lending pushed more households into renting, and the post-Covid rush from 2021 to 2023 when demand surged and rents hit record highs.
We are no longer in that kind of boom environment. Demand is still there, but it is muted, more selective and less able to absorb every extra cost landlords want to pass on.
But that is where many landlords get it wrong.
Rents are not dictated by a landlord’s costs. They are dictated by the market.
A landlord’s mortgage can go up. Their insurance can go up. Their maintenance bills can go up. But the rent only goes up if the local market is willing and able to support it.
This important distinction has always existed, but has become more acute due to a combination of factors I will explain in this newsletter.
The migration picture has changed
One of the biggest drivers of rental demand over the last few years was the surge in migration. That has now cooled down very sharply.
According to the Office for National Statistics, long-term net migration fell to 204,000 in the year ending June 2025. That was down from 649,000 a year earlier and well below the peak of 944,000 in the year ending March 2023. The ONS says the fall was driven mainly by fewer non-EU+ nationals arriving for work and study, alongside a gradual increase in emigration.
So while migration remains an important driver of rental demand, it is no longer adding pressure at the same pace it was during the post-pandemic surge. Zoopla now explicitly says lower migration is one reason rental demand has fallen and competition for homes has eased.
It is not just the level of migration. It is the mix.
There is another point here that landlords and agents will recognise straight away.
The change since 2021 has not just been about how many people arrived. It has also been about who was arriving and on what basis. The recent rise, and now fall, was driven much more by non-EU+ work- and study-related migration. The ONS says the decline in net migration was driven mainly by fewer non-EU+ nationals arriving for work and study, while Oxford’s Migration Observatory notes that 69% of non-EU immigration in the year ending June 2025 was for work and study.
Immigration feels a bit like a rollers coaster at the moment with lots of twists and turns. There was the cliff edge drop in EU migration, then rise in non-EU migration, and now fall in non-EU migration. We haven't had a period of market stability for a long time.
It does not mean poorer quality applicants. But it often does mean a different kind of workload. More applicants with limited UK credit history. More time-limited Right to Rent permissions. Fewer UK-based guarantors. More explanation needed around deposits, prescribed information, notice periods, repairs and how private renting works in England.
In other words, demand may still be there, but in some cases it takes more work to convert that demand safely into a tenancy.
That is one of the reasons careful referencing matters so much. Sentinel's own tenant compliance and referencing framework already reflects that reality including director or management level pre-vetting.
The jobs market is softer as well
The second part of the picture is the labour market.
ONS data also shows UK vacancies were down 76,000, or 9.5%, year on year in December 2025 to February 2026. There were also 2.6 unemployed people per vacancy, up from 1.9 a year earlier, which is a clear sign the labour market is less tight than it was.
It's a softer jobs market than the one landlords were pricing into during the last big rental upswing.
When employers are hiring less aggressively, people are less confident about moving. When people are less confident about moving, rental demand loses some of its urgency. And when that urgency fades, tenants become more selective and more price-sensitive.
So yes, costs may still be rising. But demand is not necessarily rising with them.
Birmingham is already showing signs of that
This is not just a national theory. There are signs of it locally too.
Zoopla’s March 2026 Rental Market Report shows average rents in Birmingham at £998 per calendar month, down 0.7% year on year in its January 2026 city snapshot. In fact, Birmingham is one of only two cities in Zoopla’s published city table where rents were falling annually, alongside Nottingham (-0.8%). Zoopla says these modest dips reflect weaker rental demand, fewer students, lower migration and a stronger first-time buyer market, rather than any major long-term increase in supply.
That is an important point, because it cuts through the mainstream media noise that “rents are up everywhere, tenants are having a bad time and landlords are profiteering”.
They are not.
Some markets are still rising. Some are flattening. Some are softening. Birmingham is a good reminder that national headlines can hide a very different local reality.
HMO landlords: opportunities and risks
If you own HMOs, this market shift is important to fold into your business strategy. What we have noticed is that landlords who struggle to adapt are those more sensitive to every void, maintenance issue or extra private bin collection. A softer market does not affect all stock equally. In the HMO world, tenants are not just choosing a room. They are choosing a household, a standard of management and a day-to-day living experience.
COHO’s 2025 shared-living research, based on responses from more than 6,000 people in shared homes across the UK, found that 58% still said affordability was the biggest benefit of shared living. But that was only part of the story. Location, bills included, good housemates and good design also ranked among the top reasons people choose a house share.
Some forward thinking landlords responded to that shift early on by investing heavily in high-spec, design-led co-living spaces. In some markets, and for a period of time, that worked very well. But it does not work in every location, and it does not work indefinitely as local demand, tenant priorities and demographics change.
The challenge is that highly bespoke design can also bring higher maintenance costs, more expensive touch-ups and slower turnaround times between tenancies. If those costs are not properly reflected in the original business model, margins can tighten quickly.
In my opinion, the next phase of the HMO market is not just about offering the cheapest room, or even the best designed room. It is about offering the most liveable room, at the highest standard the local market will genuinely support. There is little value in creating a boutique-style product if the local rent ceiling is limited, turnover is high, or tenants in that area place greater value on practicality than premium finishes. In those cases, over-specification can weaken returns rather than strengthen them. The issue is not bad design. It is misaligned design, where the product is more ambitious than the market can realistically sustain.
The reports are especially clear on one point many landlords still underestimate: housemate compatibility is a fundamental commercial matter. 59% said a bad housemate could make them leave sooner. 47% said they would pay more in rent for guaranteed compatibility. Nearly 66% said knowing what their housemates are like before moving in is important. And 40% said they would move out because they do not like their housemates. That makes compatibility a commercial issue, not just a social one. In HMOs, voids are often created by household mismatch as much as by price. This is why at Sentinel, when we get pressure from owners around why we are taking longer to fill their rooms or being "picky", it's because we have to try our best to match the prospective tenant with the existing tenants.
There is also a useful warning on house size and structure. 78% of tenants said they preferred sharing with fewer than five housemates. This is a prime example of where qualitative studies do not always match up with economic reality. As a HMO specialist and owners ourselves with lots of data points, we have found that HMOs with fewer than 7 bedrooms are the first to feel the strain of their fixed operating costs, a large maintenance bill or pro-longed voids.
COHO found 85% of tenants said a bad property manager could make them want to leave sooner, and 87% said slow maintenance would do the same. This is why we ask for instructions on maintenance issues quickly because delays no only can cause longer term damage to your property but increase your voids. That should ring alarm bells for any HMO landlord still treating management as an afterthought or a race to the bottom in choosing only to care about the headline management fee. This is a reason why the agency has been busy onboarding many new landlords from other agencies. You may not lose tenants because your room is £25 too expensive. You will lose them because the house feels disorganised, unresponsive or badly run.
And perhaps most importantly, shared living is becoming more permanent than many landlords think. COHO’s September 2025 report says 39% of tenants in shared housing had no plans to move, and nearly 19% of those who did plan to move said their next home would be another house share. The larger 2025 report also notes that more than 1 in 10 people in shared homes are aged 40 or over. We have also had a number of enquiries from retired people looking for a HMO room. Perhaps this says something about loneliness as people get older or added costs of renting your own place. Shared living is no longer just a student or early-twenties stopgap. Increasingly, it is a long-term housing choice.
The winning HMO is not the one built around a temporary, churn-heavy mindset. It is the one built around stability, clarity and adult living. HMOs are here to stay. With a shortage of housing in the country, HMOs are the most efficient use of habitable space and this is widely recognised across political parties.
Flat owners may feel this even more than they expect
If HMO landlords need to think carefully about retention and household experience, flat and apartment owners, especially those holding leasehold city-centre stock may feel the next phase of the market just as sharply, if not more so. The challenge is not just rent, but the income, holding costs and exit options all at once.
Zoopla says the gap between houses and flats has reached a 30-year high, with the average house worth 67% more than the average flat. It also says flats have materially underperformed houses over the last five years, with average flat values up just 7% compared with 24% for houses, and that the number of flats coming to market in early 2025 was up 14%, versus 5% for houses. Zoopla directly links weaker flat demand to concerns over service charges, ground rents and fire safety, alongside the pandemic-era shift in buyer preference towards houses.
In addition, large high rise luxury apartments are planned many years in advance and take many years to build. As a result, there is always a lag between the point of concept when markets are generally riding high, to the point of completion where the tide may have shifted.
This matters because many landlords who own flats are no longer dealing with just one pressure point. Rental growth has slowed, but the resale market is not particularly forgiving either. When I was doing some research for a landlord recently to explain to them why their two bed flat in the city centre was taking a while to rent out, it was because there were hundreds of two bed flats within a 1/4 of mile, some in the exact same block priced more competitively, at a rate lower than they were willing or able to go.
Leasehold costs make the picture harder still. Hamptons says the average annual service charge in England and Wales reached £2,300 by the end of 2024, up 11% on the year, with higher wage, insurance and utility costs all pushing charges up. It also notes that large, amenity-rich city-centre schemes across the Midlands and North have seen especially strong service-charge growth. That is highly relevant for landlords who bought modern flats on the assumption this increasing costs would automatically correlate to increasing rent.
Ground rent can add another layer of friction. The Leasehold Advisory Service says some leases allow ground rent to rise significantly over time, increasing costs and making properties harder to sell. So even where the rent still works on paper, the overall asset can become less attractive once you factor in the lease structure and buyer caution.
And while cladding is no longer the universal blocker it once was, it has not disappeared either. Government data shows that 9% of mortgage valuations for flats in late 2024 still required an EWS1 form or equivalent. For buildings of seven storeys and above, that figure was 47%, and for five- to six-storey buildings it was 25%. For a meaningful minority of flats, especially taller blocks which tend to be city centre based, the issue is not just price. It is still mortgageability, delay and uncertainty on exit.
That is why flat landlords may be more exposed than they look. Not because every flat is a bad investment, and not because every block is problematic, but because the margin for error is getting smaller. When rents are no longer racing ahead, service charges are rising, lease terms are under more scrutiny and the buyer pool is thinner, the question becomes bigger than “does the rent still cover the mortgage?” It becomes: does the whole asset still work?
If not, when is the right time to exit? That's a topic for another occasion.
This is where landlords need to be careful
A lot of landlords still think about rent in a very simple way:
My mortgage is up. My insurance is up. My contractor costs are up. So the rent should go up too.
That is understandable. But it is not how the private rented sector works.
If the local market supports the increase, the increase may stick. If it does not, the landlord may end up with a longer void, weaker applicants, more negotiation, or a tenant who is stretched from day one.
And when a tenant is already stretching themselves just to get through affordability, rent arrears become a very real risk. The agency's arrears policy treats rent as the tenant’s primary obligation and starts intervention quickly for exactly that reason.
That risk matters even more under the Renters’ Rights Act. From 1 May 2026, rent increases in England’s private rented sector must go through the statutory process, can generally only be made once per year, and can be challenged by the tenant if they believe the increase is above market rate. In that situation, the First-tier Tribunal can determine the market rent. The legal question is not whether the landlord’s costs have gone up. The question is whether the proposed rent is genuinely supported by the market.
There is also a second layer of risk. If a tenant falls into arrears, possession is no longer something landlords should think of as quick, easy or routine. From 1 May 2026, landlords can no longer rely on section 21 for new cases and must instead use the relevant statutory grounds for possession. If the tenant does not leave, the landlord may need to prove the ground in court, and mistakes in notice or process can cause delay and extra cost. In practice, that means overreaching on rent at the start can create both a cashflow problem and a more expensive legal problem later on.
So what does all of this mean?
It means landlords should resist two bad habits.
- The first is assuming that because their costs are up, the market will absorb any increase they put forward.
- The second is assuming that because demand still exists, tenants will keep stretching indefinitely.
The market is becoming more selective and more regulated. You cannot expect to provide sub-standard accommodation and expect tenants to be queuing at your door.
Migration is down sharply from its recent peak. The labour market is softer. Some local markets, including Birmingham, are already showing signs of weaker momentum. And the legal framework is moving even more firmly towards one basic principle: rent increases have to be evidenced by the market, not by the landlord’s outgoings.
So the real question for landlords is no longer:
“How much have my costs gone up?”
It is:
“What will the market actually pay?”
That is the question good landlords will be asking over the next 12 months.
And, frankly, it is the question good agents like ourselves are helping them answer.