2025 buy–to-let market outlook

2024 was an interesting year for the property market. Following a tumultuous year prior, many hoped stability would be the theme throughout the year. But a change in government and stubborn economic conditions provided yet another challenging year for the market to navigate. Despite this, the Buy-to-Let (BTL) market has proven its resilience once again - and this is a theme likely to continue in 2025.

Though mortgage rates have remained relatively high - despite brief fluctuations - professional landlords once again demonstrated their agility, and this is set to continue for the year ahead. Rather than being deterred by challenging conditions, landlords have used it as an opportunity to diversify their portfolios, and diversifying looks set to be the continued strategy for the foreseeable future. 

Shawbrook’s 2024 data sheds light on this. Though overall applications remained steady, heightened diversification is clear from the make-up of the applications, showing that professional landlords moved towards higher-yielding asset classes, which is continuing into this year. As a proportion of all applications submitted, semi-commercial property purchase applications rose by 31% year-on-year, while commercial property purchases increased by 28%. 
Though diversification was a priority, the data also highlighted caution as some professional landlords prioritised debt management, evidenced by the rise in product transfers, given the sustained high interest rate environment. 

This year looks set to offer further opportunities to professional landlords as rental demand is likely to rise further. The new Government has been very clear on its ambitious new housing target of 1.5million homes, but this is going to require a mammoth effort from the industry to achieve, and will have to be done so through a collective, multi-pronged approach to ensure sustained new housing delivery. However, house prices remain high, and the removal of incentives such as the stamp duty exemption for first-time buyers will have an impact. Given that first-time buyers make up the majority of new build purchases, high costs are likely to turn more and more would-be buyers to rental properties, increasing demand which is already strong. 

This is going to present opportunities for professional landlords throughout the year, who will play a vital role in providing quality stock which is still lacking in the rental market. This is also evident in build-to-rent (BTR) statistics. Savills’ Q3 BTR market update showed that the UK’s BTR stock had risen by 23% from the same quarter in 2023, indicating that there’s increase in suitable properties for landlords to take advantage of. Given the housebuilding targets and the removal of incentives, many will be keeping an eye on the BTR pipeline in the coming months.

On top of the assets previously mentioned, which illustrates the demand for diversification, we also expect to see continued demand for property types such as houses in multiple occupation (HMOs). Shawbrook saw a considerable rise in HMO business in 2024, and this could rise further this year. HMOs are favoured by landlords thanks to the higher rental yields easing affordability of mortgage lending in the current rate environment, as well as the regular turnover of tenants which allows landlords to keep rental prices in line with market rates. HMOs also offer the prospect of relatively easily reconfiguring existing properties, which in turn offers the ability to convert a lower-yielding property into a higher one. Given the likelihood of another turbulent economic year, HMOs are likely to play a significant role in professional landlords’ plans, and will also present an opportunity for non-portfolio landlords to add properties or enter the market.

Uncertainty will certainly continue in the coming months given the political and economic landscape, but this year will still present professional landlords with opportunities to adapt their strategies and future-proof their business against any hurdles. With the Government's emphasis on housing at the forefront of the news agenda, the professional landlords within the private rented sector will have a key part to play in the year ahead.