The UK rental market: Rates Update & Landlord Opportunities
by Jeni Browne, MFB
Following the surprise Stamp Duty surcharge announcement in the Autumn Budget, it’s no surprise that the industry was apprehensive about what Rachel Reeves had in store for us last month.
All things considered, the Spring Statement was relatively kind to landlords and property investors. However, some landlords remain concerned about the upcoming legislation, and many are delaying their property finance plans in hopes that mortgage rates will fall.
What trends can we expect to see in the rental market in 2025, and is it already performing better than you may expect?
Let’s look at the market in stats:
-17% Decrease in the average number of days of rental void periods MoM
+3% Annual rent inflation on new lets
x12 Renters per available BTL property
+1.1% Annual rent inflation in London
3-4% Rent inflation expected in 2025
£9bn Predicted new BTL purchase lending for 2025
(source: Goodlord, Zoopla Rental Report March 2025)
Rental Inflation and Market Trends
Rental inflation has slowed significantly, dropping from around 11% to 3%. Despite this, demand continues to far exceed supply, with 12 prospective renters for every newly vacant property and a decrease in the average void period between lets.
Why Has Rental Growth Slowed? Tenant affordability is now capping out. A repeat increase of over 10% in rental growth compared to last year, alongside wage inflation of 3.5% in 2024 and a predicted 3.9% in 2025, plus the dramatic rise in the cost of living, means tenants cannot keep pace with the substantial rent increases we’ve seen.
Positive news for landlords! Despite these challenges, rents are still expected to rise by 3-4% this year, aligning closely with wage inflation.
Mortgage Rate Predictions
At the end of last year, some predicted the Base Rate would be 3.75% by the end of 2025. However, due to market activity at the start of this year, most experts revised their predictions to 4%.
If there’s one certainty, it’s that the market can change very quickly. The recent economic uncertainty caused by Mr Trump and Mrs Reeves means that predictions may change again, potentially in favour of 3.75% (again).
Fixed rates, which are tied to long-term Base Rate views, are likely to settle between 4-5% this year and possibly ease to a more stable 4% in 2026. Please approach these predictions with caution; as recent years have shown, things can change rapidly.
Investment Opportunities
Landlords are known for their resilience, and the current focus should be on identifying property investment opportunities that will enhance rental yields and provide stability.
Let’s talk semi-commercial property!
If you want to expand your property investment portfolio, semi-commercial property is a fantastic investment type, perhaps now more than ever.
Based on our conversations with commercial lenders, semi-commercial is set to be busy this year. Thanks to different Stamp Duty tax thresholds, purchasing these properties is typically cheaper than purchasing a standard buy to let, even more so in the wake of the new 5% surcharge.
As an example, here’s a comparison of how much Stamp Duty you would pay for both property types (assuming you own at least one residential property):
For a residential property priced at £300,000, you will pay:
Stamp Duty: £20,000 (incl. 5% surcharge)
For a semi-commercial property purchase comprised of flats above a commercial unit at £300,000, you will pay:
Stamp Duty: £4,500
Savings on purchase compared to a buy to let purchase for landlords: £15,500.
The benefits of semi-commercial investments
Stamp Duty Savings: Semi-commercial property is largely exempt from the 5% stamp duty surcharge, significantly reducing purchase costs.
Longer Leases: Commercial property tends to be leased longer due to business use, so these properties give landlords a steady and reliable income. It also takes the stress out of the situation if your tenants in the residential part of the property decide to leave, as the commercial rent will likely cover it.
Higher Returns: Semi-commercial property attracts much higher rental yields than standard buy to let properties, giving you a well-deserved boost in your portfolio profits!
Good to Know: Converting commercial properties to residential
To convert a commercial property into a fully residential one, you will need to apply for approval from your local council. Now is a good time for landlords to take advantage of the government’s plans to improve and speed up the planning process for these types of conversions to boost rental supply.
Key steps in the process include verifying the building’s classification and history, ensuring proposed changes do not alter the building’s height or floor space, preparing an application with architectural designs, and submitting it for prior approval from the local council. Of course, local authorities can still reject conversions for various reasons, so all plans must undergo prior approval.
Financing Semi-commercial Properties
Choosing the right finance option for property investments depends on your portfolio plans. For purchasing semi-commercial units, Mortgage Finance Brokers (MFB) can assist in exploring rate options. For conversion projects, bridging finance is recommended. MFB can discuss how this finance type works and the associated costs to help you make informed decisions.
To speak to our team, call us on 0345 345 6788 or email enquiry@mfbrokers.co.uk
