What 2025 Holds for Landlords and Tenants: Unwrapping the Future of Renting

Happy New Year, my merry #StoreTroopers!

As we approach the start of another year faster than mince pies at the works Christmas party, let’s have a quick look at what to expect in 2025. Starting with rental growth, is it really all Bah Humbug?

Rental Growth: A Balancing Act

Recent years have seen significant rent increases, with a 4% rise in 2024 alone. Looking ahead experts, including Savills, forecasts a further 17.6% growth between 2025 and 2029, outpacing the anticipated 15% wage growth over the same period. However, an "affordability ceiling" is expected to temper this growth, especially in high-demand areas like London, where tenants already allocate nearly half their income to rent.

This essentially means that tenants, already stretched thin, simply can't afford to keep up with ever-rising costs, especially in areas like London. Rent in the capital is already swallowing up almost 50% of tenants' incomes, leaving little room for more hikes. Outside London, though, there might still be wiggle room for landlords to increase rents.

The Supply and Demand Tug of War

The rental market is still playing catch-up with demand. Tenant inquiries are through the roof, but the number of available properties is heading in the opposite direction. A 24% reduction in rental stock compared to pre-pandemic times has created a fiercely competitive market. In fact, there’s an average of 21 renters chasing each available property. That’s more competition than getting Glastonbury tickets!

Why the supply crunch? Many landlords are deciding to exit the market altogether. New regulations, rising taxes, and financial burdens like higher mortgage rates are driving some to sell up. This exodus further exacerbates the supply issue, leaving tenants scrambling to secure homes.

Legislative Changes: A Game Changer for Landlords and Tenants

The much-anticipated Renters' Rights Bill (RRB) could shake up the PRS significantly in 2025. Here’s what’s on the table:

No-Fault Evictions Abolished

Landlords will no longer be able to evict tenants without a valid reason under Section 21. This is great news for tenants seeking stability but could complicate life for landlords with problematic tenants.

Decent Homes Standard

The government is pushing to ensure rental properties meet basic living standards, which I personally think is a great idea. Obviously, all my #StoreTroopers are way ahead of this and only have the best properties for their tenant. Sadly, there are those out there who would rather save a buck and avoid the staples of comfortable living, think adequate heating, proper insulation, and no damp or mould.

PRS Database

Speaking of who, rogue landlords, beware! The creation of a database will improve transparency and weed out those who don’t play by the rules.

For tenants, these reforms are a win, offering more security and better living conditions. For landlords, it means staying compliant and potentially facing higher costs to meet these new standards. But also, future tenants will be able to see who the good guys are.

Energy Efficiency: A Hot Topic

Sustainability is no longer optional; it’s expected. Yes, I know I go on about this one - landlords need to prepare for tighter energy efficiency regulations, with properties potentially needing an EPC rating of ‘C’ or better by 2030. This might sound far off, but savvy landlords are already making upgrades like double glazing, insulation, and energy-efficient boilers. Why? Because tenants are increasingly prioritising eco-friendly homes to save on energy bills. Plus, green properties could command higher rents and lower void periods.

However, these upgrades aren’t cheap. Many landlords are worried about the cost of retrofitting older properties. For those with tight margins, this could be a tipping point, pushing more to sell.

Mortgage Rates and Homeownership Trends

After a volatile period, mortgage rates are stabilising in the low 4% range. While this is welcome news for prospective buyers, it could slightly ease rental demand as some tenants transition into homeownership. This shift may lead to an increase in first-time buyers, potentially easing rental demand over time. Nonetheless, the PRS remains vital, offering flexible housing solutions for those not yet ready or able to purchase a home.

Regional Variations: Not All Rents Are Created Equal

The rental market is far from uniform across the UK. While London rents make headlines for their eye-watering prices, other regions offer a more affordable alternative. Take Hartlepool, for instance, where the average monthly rent is a mere £564. Even with a nearly 10% annual increase, that’s still a bargain compared to London. On the flip side, the capital’s rental market continues to sizzle like the turkey, fuelled by high demand from young professionals and international tenants.

Investors should take note of these regional disparities. Areas with lower rents but high tenant demand, like parts of the North or Midlands, could offer better yields and less exposure to affordability constraints.

So, Is 2025 All Bah Humbug?

I don’t believe so, 2025 is shaping up to be a year of both challenges and opportunities. Landlords who adapt to legislative changes, invest in energy efficiency, and understand regional market dynamics will be better positioned to thrive. Those resistant to change might find the sector increasingly inhospitable.

For investors, the key is to play the long game. Properties in emerging markets with strong rental demand and good transport links are worth exploring. Staying compliant and providing quality homes will not only attract tenants but also future-proof investments.

In Conclusion

The UK’s Private Rental Sector is in for another eventful year. Tenants might gain more rights and stability, while landlords face more regulations and rising costs. However, with the right strategies, landlords can navigate these challenges and continue to find success in an evolving market. After all, the rental market is like a good British cuppa—there’s always room for a little adjustment to make it just right.

Until next time, I wish you all a successful and prosperous 2025. And remember, keep your investment compass steady and your dreams of property prosperity alive!

The Anonymous Investor.

*This blog post is for general information only and is not financial advice. Always speak to a financial advisor for guidance on your specific situation.