What Does 2025 Look Like for the Rental Market?
Posted on 6th January 2025 at 15:02
The rental market is set to navigate another dynamic year in 2025. While the sector continues to show resilience, shifting government policies, evolving tenant preferences, and changing economic conditions are shaping a challenging yet opportunity-rich landscape for landlords and investors alike. Here’s a closer look at what’s ahead.
Rising Rental Demand: Regional Opportunities
While demand for rental properties remains strong, it has softened slightly from its peak. The average number of enquiries per rental home across the UK has dropped from 19 to 11, though this is still nearly double the pre-pandemic average of six enquiries per property in 2019 (according to data from Rightmove). This reflects a market where competition remains intense, albeit less frenzied than in recent years.
Regions like Yorkshire & the Humber are emerging as key hotspots, boasting one of the highest average rental yields across the UK (according to the Rightmove Rental Trends Tracker - Copyright © 2024 Rightmove plc. Released Wednesday 16th October| Page 5 of 6) with an average yield of 6.9%. This area is also attractive to tenants, with an increasing amount of job opportunities and a lower cost of living it means our area is also maintaining a high demand.
The Supply and Demand Imbalance Narrows - But Persists
Although the imbalance between rental supply and demand has started to narrow, it remains a defining characteristic of the market in 2025. High demand is expected to continue, keeping upward pressure on rents. However, the market is evolving. Average UK rents are forecast to rise by 4% this year, with the steepest growth likely in affordable regions rather than in larger cities or London (according to Zoopla’s Rental Market Report: December 2024).
The Renters’ Rights Bill: A Game-Changer
The Renters’ Rights Bill, which promises the most significant overhaul of tenancy law in decades, is poised to reshape landlord-tenant dynamics. The bills most significant points are:
• Abolish Section 21 evictions ("no-fault evictions").
• End fixed-term tenancies, replacing them with more flexible arrangements.
After significant progress in late 2024, the bill enters 2025 at the report stage in the House of Commons. While it’s unlikely to become law before spring, there’s a strong chance it will be enacted by the end of the year. Landlords should start preparing now by familiarizing themselves with the proposed eviction processes and reviewing tenancy agreements to ensure compliance with the anticipated changes.
Rental Prices: A Slower Rise but Persistent Affordability Issues
Rental prices are expected to rise in 2025, though at a slower pace than in previous years. Average rents outside London have reached £1,339 per month, reflecting a 4.5% increase from last year. London rents, meanwhile, have risen by just 2%.
While demand remains strong, affordability pressures are shaping the market. Over the past five years, rents have surged by 40%, outpacing wage growth, which has increased by 28% in the same period (according to Simply Business). This gap has pushed many renters toward more affordable areas like ours.
Energy Efficiency Becomes A Focal Point
Sustainability continues to be a major focus for landlords in 2025. Properties with strong energy performance ratings are increasingly sought after by environmentally conscious tenants. With the Labour government’s plans to raise the minimum Energy Performance Certificate (EPC) rating from E to C by 2030, landlords who invest in energy-efficient upgrades now could gain a competitive edge.
Although details on implementation remain unclear, it’s anticipated that a consultation period will precede new mandates, addressing exemptions, cost caps, and enforcement timelines. Proactive landlords can position themselves ahead of the curve by upgrading insulation, installing energy-efficient appliances, and embracing renewable energy solutions.
Policy and Regulation: Buy-to-Lets Under Pressure
The buy-to-let market faces another tough year following the government’s decision to increase the stamp duty surcharge on additional properties to 5%. Introduced in the October 2024 budget, this hike adds another layer of financial burden for landlords looking to expand their portfolios. Coupled with an already intricate regulatory framework, the increased surcharge has dampened confidence among many investors.
Despite these headwinds, the long-term fundamentals remain robust. Regions where rental demand outpaces supply continue to offer attractive opportunities, particularly in areas with high yields and consistent tenant interest such as Yorkshire & the Humber.
Final Thoughts: Opportunities Amid Challenges
For landlords and investors, 2025 represents a year of both obstacles and opportunities. While regulatory changes and affordability pressures create challenges, the market’s fundamentals remain strong, particularly in high-demand regions.
By embracing energy efficiency, focusing on strategic locations, and preparing for legislative changes, landlords can position themselves for success in an evolving rental landscape. With careful planning and adaptability, 2025 could prove to be a rewarding year for those willing to navigate its complexities.
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