Rents are only expected to inflate by 1.0% in 2025, after Hamptons downgraded its forecast from 4.5%.
So far this year tenant demand is 11% lower year-on-year, as well as 20% lower than 2019 levels.
Hamptons attributed this to falling mortgage rates, which have helped more tenants get on the housing ladder.
First-time buyers purchased a record 33% of homes sold across Great Britain in the first half of the year.
Another factor is job losses, particularly in hospitality and graduate roles.
Aneisha Beveridge, head of research at Hamptons, said: “The rental market softened more quickly than we anticipated towards the end of last year.
“What initially appeared to be a London-centric slowdown has now spread across the country, with rents declining in multiple regions and growth easing elsewhere.
“A combination of falling mortgage rates and a weaker labour market has shifted the dynamics – more affluent renters are becoming first-time buyers, while the economic slowdown is limiting what others can afford.”
Rents on newly let properties rose 0.4% year-on-year across Great Britain in June – the weakest growth since August 2020 – with declines recorded in London (-2.5%), Wales (-0.9%) and Scotland (-0.5%).
Despite the current status of the rental market, supply shortages and upcoming regulatory changes like the Renters’ Rights Bill are expected to drive rents up in the medium term.
Beveridge added: “That said, this isn’t the end of the rental growth story.
“The structural shortage of rental homes remains unresolved, and upcoming regulatory changes, such as the Renters’ Rights Bill and new EPC requirements, are likely to constrain supply further and add to landlords’ costs.
“A slowdown in build-to-rent development this year is also expected to result in fewer new rental homes entering the market in the coming years. These pressures will continue to underpin rental growth over the medium term, even as the market recalibrates in the short-term.”