The UK residential property investment market faces a mixed but cautiously optimistic outlook for 2025, driven by government ambitions, emerging legislation, and stabilising market dynamics.
Government housing targets and fiscal changes
The government’s commitment to delivering 1.5 million homes this Parliament underpins the need for continued private investment in housing. While the October Budget introduced concerns, such as the 2% Stamp Duty surcharge increase for second homes (raising costs by £10,000 on a £500,000 property), key measures like Capital Gains Tax rates remain unchanged.
Interest rates are expected to gradually decline in 2025, despite temporary headwinds from inflation. This would ease borrowing costs, offering relief to landlords and investors looking to expand portfolios.
Impact of the Renters’ Rights Bill
The private rented sector (PRS) is set for significant reform under the Renters’ Rights Bill, introducing changes such as:
- Section 21 ‘no fault’ evictions replaced by periodic tenancies;
- Rent caps and bans on rental bidding wars;
- Mandatory PRS ombudsman and Decent Homes Standard.
Corporate landlords and Build-to-Rent (BTR) operators, already aligning with higher operational standards, are less affected by these reforms and are poised to capitalise on regulatory pressures driving smaller landlords out of the market.
Supply and demand imbalance
Rental inflation has slowed to an average of 3-4% as affordability constraints limit rent rises. However, demand remains elevated, particularly in regions with limited rental stock, where institutional landlords and BTR developers can capitalise on opportunities.
The BTR sector continues to boom, with:
- 120,000 completed units and a pipeline of 273,700 homes;
- Regional BTR growth (31%) outpacing London (13%) as demand for professionally managed, high-quality rental housing grows.
Government incentives and planning challenges
To meet housing delivery targets, the government must address stalled new build schemes caused by:
- High Section 106 contributions and biodiversity net gain requirements;
- Rising material and labour costs.
The reversal of Multiple Dwellings Relief remains a priority. Its abolition has been estimated to cost 25,000 homes and 60,000 jobs, hindering BTR’s potential to deliver diverse tenures, including much-needed later-living developments.
Looking ahead to 2025
Despite fiscal and regulatory hurdles, 2025 is poised to be a strong year for residential property investment. Falling interest rates, stabilised rental growth, and institutional BTR expansion will drive market resilience. Investors who adapt to regulatory changes and prioritise high-quality, managed rental housing will find substantial opportunities in an evolving property landscape.