I think it’s fair to say that 2024 was an eventful year for the property industry, and the BTL market was by no means an exception.
Landlords were impacted by a variety of changes and challenges, many of which were caused by the policies brought in by the new Labour government and the elevated cost of borrowing.
In spite of these challenges, bricks and mortar investments have demonstrated remarkable resilience.
Average property prices now sit at near-record highs (£297,166), according to the latest Halifax House Price Index, underlining the extraordinary capital growth potential that UK property provides.
Meanwhile, although at a much slower pace compared to 2023, rental growth has continued to rise at rate of at 3.9%.
In combination, these figures paint a much rosier picture of the current state of the BTL market than many commentators and experts would have you believe.
And, while 2025 will undoubtedly bring with it some fresh challenges, I’m cautiously optimistic for the outlook of the BTL market in the months ahead.
Investors will need to grapple with a higher tax and regulatory burden
Admittedly, the spectre of increased tax and regulatory reforms will be looming large in the minds of investors.
The immediate implementation of a stamp duty land tax (SDLT) surcharge on second homes during the Autumn Budget will continue to affect landlords’ purchasing power, while the reduction in the threshold for paying SDLT – from £250,000 to £125,000 – could create further affordability challenges for landlords purchasing multiple properties.
We’re expecting these tax changes to result in a rush of activity before they take effect in April.
Meanwhile, the reintroduction of stricter energy performance certificate requirements will force many landlords to renovate or upgrade their properties to meet the new standards.
With the deadline set for 2030, landlords will need to decide when and how to finance these upgrades – 18 million homes in the UK currently fall below the new minimum standard, so some landlords are likely to start preparing this year.
Elsewhere, the Renters’ Reform Bill, which is currently making its way through parliament, is likely to become law in 2025.
Amongst other things, the bill will abolish Section 21 ‘no-fault evictions’ and end fixed-term tenancies, which could significantly impact the ways in which landlords manage their tenants.
These factors have led some commentators to predict a mass exodus from the BTL market, suggesting that it may no longer have a future.
However, such fears are overly speculative. The core attraction of BTL remains its potential for returns in both rental yields and capital growth, which will still be supported by further rate cuts from the Bank of England.
Falling interest rates will provide some healthy optimism
Indeed, the anticipated decline in interest rates is set to be a major catalyst for market growth in 2025.
The Bank of England already enacted two rate cuts in 2024, and both decisions were met with renewed optimism and activity on the part of landlords.
For landlords, lower interest rates bring several advantages. Reduced borrowing costs can significantly enhance profitability, especially for those managing multiple properties.
The potential to refinance existing loans under more favourable terms will also bolster returns, enabling landlords to deploy capital more strategically.
With that in mind, we’re optimistic that landlords will be looking to grow their portfolios in the coming months.
Prices and rental values look set to grow
As a result of these conditions, we expect house and rental prices to both go from strength-to-strength in 2025.
Forecasts suggest property prices could rise by 4%, with long-term growth expected to reach 23.4% by 2029.
Meanwhile, rental prices are also on track to rise, with estimates indicating a 4% growth in 2025. This could allow rental yields to climb, particularly if borrowing costs continue to align with falling base rates.
Specialist finance will need to support the market
Considering the challenges that tax and regulatory changes will create, and the uncertainty with which many investors will be continuing to treat the economic climate, the specialist finance market will need to support the sector in 2025.
Landlords will need tailored financial solutions to navigate new challenges, from financing property upgrades to adapting to shifting rental laws.
Therefore, specialist finance providers who can offer flexible products, strategic advice, and quick decisions will be invaluable to landlords as they seek to optimise their portfolios and capitalise on the growth potential of the market in the new year.
If lenders can get that right, there’s every reason to be optimistic about the BTL market in 2025.
