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As 2024 draws to a close, it’s time to start planning for the New Year ahead.
Landlords who have weathered the financial turbulence of recent years may be feeling cautiously optimistic about the financial outlook for 2025 as the economy begins to show tentative signs of recovery.
However, as we enter 2025, there are some significant challenges ahead. Supply and demand imbalances show little sign of easing, and the much-debated Renters’ Rights Bill is set to bring significant legislative changes.
While 2025 offers glimmers of hope for a more stable economy and healthier conditions for investment, the rental sector is undergoing many changes. Landlords will find themselves under more scrutiny and must focus on providing high-quality, energy-efficient homes and adopting fair and transparent practices.
In this article, we’ll take a closer look at what 2025 holds for landlords. We will explore the key economic and legislative developments that landlords must prepare for, helping you to plan for a successful and profitable year ahead.
2024 Recapped
Many landlords entered 2024 under significant financial strain after a turbulent period of high inflation and rising interest rates.
Once inflation finally reached target levels, it remained on target for most of the year. In response, the Bank of England began cautiously cutting interest rates during the summer, sparking optimism that we were on the road to recovery.
Politically, 2024 saw a seismic shift. After an early general election, the long-standing Conservative government were pushed out, and a new Labour government was voted in, headed by Keir Starmer.
Starmer promised to make significant changes to the private rented sector to provide renters with greater security and stability. These changes were published in the Renters’ Rights Bill and are poised to come into effect in early 2025.
2025 Financial Outlook and Predictions
When we look at predictions for 2025’s economic outlook, things are set to remain fairly stable, with incremental improvements in key areas.
The British Chambers of Commerce expect the UK economy to grow by around 1% in 2025, with widespread uncertainty holding back further growth.
Inflation, interest rates, and mortgage rates
- Lower interest rates: The Bank of England is expected to keep lowering interest rates throughout 2025 to a rate of about 4.3% by the end of the year.
- Stable inflation: Inflation is predicted to fall slowly to about 2.2% by the end of 2025.
- Stable mortgage rates – Mortgage rates have currently stabilised at around 4% and are expected to reduce slightly during 2025.
Signs suggest that the UK’s economy should be more stable during 2025, with a reduction in borrowing costs and more affordable mortgage rates offering some much-needed respite to landlords, tenants, and investors.
Legislative Changes in 2025
With the economy on a gentle upward incline, it’s all eyes on the evolving legislative landscape in 2025. The new Labour government is set to shake up the rental sector, with the Renters’ Rights Bills taking centre stage.
The Renters’ Rights Bill
Expected to come into effect as early as Spring 2025, the Renters’ Rights Bill will bring major changes and uncertainty for landlords. The reforms aim to create a more stable and secure private rented sector (PRS) for tenants but will increase compliance requirements for landlords. Landlords will need to spend time understanding the new legislation and making changes to their business to ensure compliance.
Key reforms being introduced under the bill include:
- The end of Section 21 “no-fault” evictions.
- Replacing fixed-term tenancies with rolling, periodic tenancies.
- A new Private Rental Sector Ombudsman.
- Application of the Decent Homes Standard to the PRS.
The reforms will hold landlords to higher standards and require them to become more accountable and transparent in the way they operate.
You can read more about the changes being introduced by the Renters’ Rights Bill in our blog: Labour’s Renters Rights Bill: What it Means for Landlords and Tenants.
Reinstated Minimum Energy Efficiency Standards (MEES) target
As the government’s net zero target creeps closer, landlords will need to focus on creating more sustainable and energy-efficient rental properties. Under the new Labour government, landlords will need to meet a new minimum EPC rating of C by 2028 for new tenancies and 2030 for all tenancies.
Landlords should start researching and planning energy efficiency upgrades for their rental properties in 2025 to make sure they can meet minimum requirements well in advance of the deadline.
Ultimately, the legislative changes being introduced in 2025 are expected to have a positive impact, helping landlords to offer a higher standard of living to their tenants, resulting in happier tenants who stay longer. However, the increased complexity could be off-putting for some landlords, and many have concerns about how difficult it will be to evict problem tenants without Section 21.
Housing Market Trends in 2025
The housing market will continue to face many of the same challenges in 2025 as it did in 2024, as ongoing supply, demand, and affordability issues prevail.
House prices
Savills predicts that UK house prices will grow by 4% in 2025, supported by steady cuts to the base rate, which will improve affordability. The North of England is expected to see the most growth, whilst London will see the least, constrained by affordability challenges.
Rental market
Rent has been at a record high recently because of the demand and supply imbalance that is causing a shortage of rental properties in the UK. According to Zoopla, UK rental inflation has slowed to 5.4%, close to half the rate it was a year ago. This slowing of growth is being caused by affordability pressures limiting what renters can pay, particularly in big cities. While growth is slowing, rent is expected to remain at a record high during 2025.
The Renters’ Reform Bill is set to cap rent increases to once per year, potentially moderating further inflation.
Supply and demand dynamics
Supply of housing in the UK will be limited for both buyers and renters throughout 2025. According to Zoopla, the supply of rental homes remains 24% lower than the pre-pandemic level, although it has increased by 18% compared to 2024, as lower mortgage rates have enabled some renters to exit the market to buy their own homes.
Despite this, rental demand is expected to remain above average throughout 2025. Although buying property may become slightly more affordable, it will remain unaffordable for many.
As mortgage rates stabilise and more people can afford to buy, the demand for rental properties could start to ease over time, but this is likely to be very gradual, and no sudden dip is expected in the year ahead.
If reforms introduced by the Renters’ Rights Bill cause landlords to exit the market, the supply of rental properties would fall further, potentially pushing rent higher, which would hit low-income renters the hardest.
The Labour government have announced that they will reform the National Planning Policy Framework (NPPF) to help address the UK’s housing shortage. They are set to reintroduce mandatory housing targets with a target to build 1.5 million new homes over the next five years. In the long term, these changes could help to increase the housing supply, but the impact will be minimal in 2025.
The Investment Landscape in 2025
Property investment in the UK is predicted to pick up again in 2025. CBRE predict a 15% increase in overall investment, supported by falling interest rates and a more stable economy. Landlords who have been waiting to expand their portfolio may choose to do so in 2025 amidst high rental demand and stable mortgage rates.
Foreign investment
London is set to benefit from a surge in foreign investment as interest rates decrease, making the market more attractive to overseas buyers.
Challenges for investors
However, while the overall investment climate appears positive, some investors may be deterred by the 2% increase in higher-rate stamp duty, which was announced by the Labour Party in its Autumn Budget earlier this year. Investors may turn their attention to lower-value properties where returns will remain strong despite the increase in SDLT.
Key Takeaways
Landlords should enter 2025 with careful optimism, ready to embrace opportunities while adapting to the evolving demands of the rental sector.
At the start of the year, landlords will need to work hard to adapt their practices and improve their rental properties to ensure compliance with the new Renters’ Rights Bill.
A key focus for the year ahead should be creating energy-efficient rental properties that offer tenants a high standard of living.
For those who have been waiting to invest or expand their portfolio, falling interest rates, a more stable economy, and high rental demand could make 2025 an opportune time to do so.
