Here, Tom Entwistle recalls the year in property and looks forward to the year ahead.
As always, successful investing in property requires thorough research, and careful assessment of many factors that ensure you buy in locations where there is a healthy tenant demand for the type of property you chose.
Careful tenant selection, while working within the discrimination laws, will be an important consideration given the likely introduction of new more stringent tenancy rules during 2025.
Whilst there is much concern about managing rental properties under the new rules to be introduced under the Rents’ Rights Bill, the rewards are likely to go to those landlords who are prepared to do their homework, adapt and operate to a high professional standard in buy-to-let. There will be opportunities to buy as others retire and those who simply decide to leave the private rented sector.
It’s been a testing time for the UK economy over the past few years – including a change of government this year; a shock Autumn Budget, with hikes in stamp duty for second homes; National Insurance hikes on employer contributions (NICs); and Capital gains tax (CGT) and Inheritance Tax (IHT) increases. Plus, we have an ongoing housing and cost-of-living crisis which the new Government is grappling with.
The Bank Rate remains higher than it’s been stable for some time at 4.75% though this level looks like becoming the new norm, while inflation shows signs of creeping up again at 2.6%.
However, the housing market has continued to defy many doom-laden forecasts. Demand for renting is at an all time high but private renters face more affordability challenges than other housing tenures. For example, private rent payments are almost double those in the social sector. Meanwhile, house prices have remained relatively steady.
At the last Monetary Policy Committee meeting the Bank of England said:
“If those [inflationary] pressures continue to ease, we should be able to keep reducing interest rates gradually. But it is vital that we make sure inflation stays low, so we need to be careful not to cut them too quickly or by too much.”
ONS figures published December 2024 show the average house price for the UK increased by 3.4%, to £292,000, in the 12 months to October 2024 (latest provisional estimate); this annual growth rate is up from 2.8% in the 12 months to September 2024.
Meanwhile, average UK private rents increased by 9.1% in the 12 months to November 2024 (latest available provisional estimate); this is up from 8.7% in the 12 months to October 2024, easily outstripping inflation.
Average rents increased to £1,362 (9.3%) in England, £772 (8.0%) in Wales, and £980 (6.5%) in Scotland, in the 12 months to November 2024. In Northern Ireland, average rents increased by 9.0% in the 12 months to September 2024.
Source: ONS - Private Rent & House Price Inflation
A continuing shortage of rental accommodation will underpin market rents in 2025 with the UK's rental prices expected to increase again, but at a slower rate than in recent years. Savills predicts a 4% increase in rental growth across the UK in 2025, Hamptons 4.5%, followed by 4% in 2026 and 2027.
There could be affordability issues with the pressures on tenants resulting from past steep rent rises, the cost-of-living price increases, and there’s the uncertainty of how the effects of the Renters' Rights Bill, the Autumn Budget measures, and other regulatory changes will play out.
In the case of UK house prices, having shown a recovery from its "mini" property recession and technical, economic recessions in early 2024, there are now multiple factors affecting forecasts for UK house prices in 2025, in particular the question mark over economic growth.
Rightmove predicts a 4% increase in average asking prices by the end of 2025, which is broadly in-line with the long-term average. Meanwhile Savills sees a 3.5% increase in 2025, with further rises in 2026, 2027, and 2028, Knight Frank is more pessimistic with its forecast at a 2.5% increase for 2025.
Again, affordability, job prospects, wage increases, and economic growth will have the biggest influences over house prices in 2025 and beyond. Buyers in London and the Southeast will still need to borrow more relative to their income and accumulate a bigger deposit to buy a home.
A lot will depend on the speed of any UK economic recovery - there is a big question mark over whether the effects of Rachel Reeves' budget will support or hinder economic growth in the short and long-term?
In the case of residential property, Savills latest 2025 forecast says the housing market is in the early stages of recovery, but a variety of the new Government’s policies appear to make sustaining it in 2025 uncertain.
Savills identifies family homes in “educational super towns” as potential hot spots, given an “expected drive to find good, affordable education at a time when VAT on school fees is likely to shape where more affluent families put down their roots. These the property agency identifies as key locations of strong demand when near outstanding state schools.”
These are likely to be investment areas with lower yields, but with the prospect of high-quality tenants and good house price growth.
Savills research shows that residential buy-to-let in the Northwest of England remains its top performer for annualised returns at 10.8% (total return), as it did in its 2024 forecasts. Savills finds positivity in the sector across the UK being driven by the restrained supply of prime space in most cities.
So, investors who research an area thoroughly should be in a strong position to find good deals that stack up well, rental properties that will grow in value while producing decent yields over the medium to long term.
If you’re in the market for investing in buy-to-let property, rental yield can help you decide if the cost of the property is worth the potential rental income. The highest yields are undoubtedly in areas further north in the country; the Northwest, Northeast, Scotland and parts of the midlands being fertile hunting grounds.
However, potential investors should be aware that the highest yields (lowest house prices) don’t always equate to a trouble-free investment. Many of these properties are in severely run-down areas and managing property at a distance in some areas can be a challenge, which means relying on the quality of your letting agent.
The highest yielding cities in the UK, according to Zoopla, are in Sunderland, Aberdeen and Burnley, offering average gross yields of 8%+. The Northeast has proved to be a favourite region for investors looking for strong yields, offering on average, 7.65%
Take all other factors into account before you invest. Carefully assess tenant demand, buy the right type of property with the right amenities, employment and public transport close at hand, determine the quality of potential tenants, and the potential for future house price growth.
All this means that if you can buy the right type of property, one that’s in demand, in the right location and at a good price, you should be able to secure better than average rental returns and good capital appreciation.
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