What Can Investors Expect From The 2025 Rental Market?

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Rental Growth is Set to be More Sustainable in 2025

Rents across the UK increased significantly by approximately 8% in 2024 compared to the same period in 2023. While this represents a substantial opportunity for landlords and investors, the growth rate is unlikely to continue in the long term due to affordability limits for renters. This sharp rise in rental prices is unsustainable and is expected to hit a cap, limiting future growth.

However, in 2025, the rental market is expected to see a more moderate growth. Rightmove forecasts a more sustainable 3% increase across the UK. This shift to more gradual growth helps ensure that the 2025 rental market remains robust while avoiding affordability issues that could lead to a fall in demand. For investors, this offers a balance between healthy rental income and long-term market stability.

Additionally, London’s rental market is expected to pick up in 2025, following a period of stagnation. The demand for city-centre living is now returning, after falling during the pandemic as people looked for larger properties in suburban areas.

The Rental Market Remains Competitive

Although rental growth in 2025 is expected to be more moderate than in 2024, competition in the rental market will remain strong. This creates an environment where landlords and property investors can still capitalise on strong demand while benefiting from better market stability.

Despite moderate rent growth, competition in the rental market will remain robust, with tenants competing for a limited supply of available properties. Data from property portals reveal that rental properties were let 20% faster in 2024 compared to five years ago. This trend indicates that demand continues to outpace supply. Ensuring that investors can maintain high occupancy rates and achieve quicker returns on their investments. In 2025, this trend is expected to stay, giving landlords a better chance to secure reliable tenants.

Furthermore, investors who stay on top of evolving tenant demands will have an opportunity to maximise rental income. For example, properties that meet specific tenant preferences, such as those with home office spaces, modern amenities, or energy-efficient features, will likely see higher rents.

2 professionals with a model of a house explaining the 2025 rental market

The North Leads the Way For Strong Capital Appreciation

In recent years, there has been a clear trend of stronger house price growth in the North of England compared to the South. This trend is expected to continue in 2025, with the North still predicted to outperform the South in terms of house capital appreciation. For property investors, this presents a compelling opportunity in the rental market to capitalise on areas experiencing substantial growth potential.

The North West, North East, and Yorkshire & Humber are expected to see some of the highest house price growth in 2025, with a projected increase of around 5%. The North West is set to lead this growth, with predictions indicating a 29.4% increase in property prices by 2029.

Cities such as Leeds, Manchester, Sheffield, and Bradford are anticipated to be at the front of this growth. These cities are also benefiting from increasing demand due to factors such as regeneration projects, improved infrastructure, and a growing number of businesses relocating or expanding in the North. For investors, these cities represent prime opportunities to invest in a secure rental market and achieve higher returns in the long run.

Mortgage Rates Are Set to See a Fall

In December 2024, the average mortgage rates stood at 4.83% for a 5-year fixed rate and 5.08% for a 2-year fixed rate. However, forecasts for 2025 suggest that these rates are likely to fall to around 4%. This anticipated decline is based on projections of four base rate cuts throughout 2025.

A reduction in mortgage rates to around 4% will make borrowing more affordable for property investors. Particularly those relying on financing to acquire new properties or refinance existing ones. Lower mortgage payments can significantly improve income, increasing the profitability of rental properties. Additionally, buyers may be more inclined to enter the rental market, therefore increasing demand for housing. This rise in demand could drive property values higher, creating opportunities for capital appreciation in addition to rental income. Investors could see their properties appreciate more quickly as the market becomes more active.

While the outlook is positive, these rate predictions are reliant on the Bank of England following through with the anticipated rate cuts. Any external factors, such as unexpected inflation pressures or economic disruptions, could affect these forecasts. Therefore, investors should monitor these closely and adapt their strategies accordingly.

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