Last year saw a change of Government, as well as inflation dropping back in line with target. But, with the fear we aren’t out of the woods yet, interest rates have not dropped downward as quickly. Despite the general negativity in the air, stock markets and commodity prices around the world are at, or near, all-time highs, whilst in the UK rents and house prices both rose.
So, what does 2025 have in store for landlords? Let’s find out…
Stamp duty to increase - confirmed
In the Autumn Budget, landlords were instantly hit with an additional stamp duty surcharge, which increased from 3% to 5% of the purchase price.
In addition to this, it was confirmed that stamp duty would rise across the board from 1st April 2025, with buyers starting to pay stamp duty on properties over £125,000, instead of over £250,000 at the moment (potentially costing an additional £2,500). Meanwhile, first-time buyers, who currently pay no stamp duty on homes up to £425,000, will start to do so on homes bought from £300,000 (potentially costing an additional £6,250).
This will likely cause a rush to complete in the first quarter of the year, with some sales being renegotiated or collapsing if they don’t beat the deadline, alongside a possible slowdown in the second quarter as people re-adjust to the new landscape.
Other taxes to increase - confirmed
Capital Gains Tax was already higher for landlords selling a rental property, but rates for all other assets have now been increased too.
National Insurance will increase for ‘employers’ from 6th April from 13.8% to 15% and the threshold for when ‘employers’ need to start paying the tax will be lowered from £9,100 to £5,000. I put ‘employers’ in apostrophes because ultimately it will impact what an employer can pay their employees, so it will affect wages (or employment levels). I await confirmation from my accountant as to whether this will also impact company directors (and those who own property in Limited Companies) in regards to the ‘optimum’ salary they should withdraw from a company.
There are also increases coming for car duty taxes, tobacco & alcohol purchases, the TV licence and council tax.
Meanwhile, thresholds have been frozen for an even longer period on many taxes, including income tax and inheritance tax. This means that over time (due to inflation) a greater amount of tax will be paid by more people.
The unfairness of how Section 24 changed mortgage relief for landlords will also become more notable as incomes rise, the bandings are frozen and mortgage payments increase (without being able to fully offset them, whilst first paying tax on income rather than profit).
Minimum wage to increase - confirmed
From 1st April the hourly minimum wage will increase:
- from £11.44 to £12.21 for those aged 21 and above (+6.7%)
- from £8.60 to £10.00 for those aged 18-20 (+16.3%)
- from £6.40 to £7.55 for those aged 16-17 and apprentices (+18%)
The increases are generous across the board, but especially so for the youngest workers.
They present an additional challenge for businesses, however, especially when factoring in National Insurance increases and wider economic pressures.
I suspect some businesses will need to cut back or even close, meaning some people will be out of a job and rent defaults will increase. For those who stay in employment though, rental affordability will improve and I also think it could lead to….
House prices to rise - likely
Despite many expecting house price falls based on the ongoing cost of living crisis and with interest rates higher than we had been used to for the past 15 years, UK house prices actually ended 2024 up 3.3%.
The worst of inflation has passed (for now?) and interest rates are set to drop (but by how much?). Theoretically then, house prices should rise? I think this will be true, but especially so in more affordable areas (e.g. Northern cities), where the reliance on mortgages is higher (so interest rates make more of a difference) and incomes are lower (so the impact of minimum wage increases are more pronounced).
Interest rates to fall, yet mortgage payments to rise for many - likely
A recent survey of 51 economists shows an expectation of four quarter-point interest rate cuts this year, which would take the base rate from its current 4.75% to 3.75%.
Nevertheless, there were an awful lot of five-year fixed-rate mortgages taken out in 2020 that are now due to expire this year. These homeowners and landlords will see a payment shock as mortgage rates have (at least) doubled on average since then.
Landlords are also starting to realise that the past 15 years have been the exception rather than the norm and so higher mortgage rates (and higher monthly payments) are most likely here to stay.
Rent increases to level out - likely
Average rents in the UK have increased by 34% in the past four years as more tenants have been fighting over fewer rental homes. In the four years prior to that, rents increased by just 3.5%. Please note: the recent rapid rise in rents is not normal!
Whilst the same supply and demand imbalance remains, I cannot see rental prices continuing to balloon simply based on tenant affordability limits. In fact, they are now rising at the slowest pace for over three years, whilst more rental properties are seeing a reduction in advertised rental price.
I still expect existing tenants who have lived in their homes for a few years though to face rent increases, as they are aligned closer to market rates. In regards to new rentals, again I expect growth to come from areas that are currently more affordable, with the most expensive areas where rents have risen the most in recent years to flatten out.
Energy efficiency in the spotlight - highly likely
It came as a big surprise in September 2023 when the then Prime Minister, Rishi Sunak, scrapped plans to increase the minimum energy efficiency standard for rental properties in England and Wales.
Labour, however, have put this back on the table and have a consultation running, which is due to end in February. The smart money suggests all rental homes will need to be upgraded to a minimum C rating by 2030 (…which is AFTER the next General Election…).
There are an estimated 2.6 million privately rented homes (60% of total supply) that fall below this standard. With a distinct lack of funding and skilled tradespeople available to undertake the works, it could be difficult to complete these potentially expensive improvements (many of which can actually be detrimental to a property).
Renters Reform Bill to be implemented - highly likely
2025 should be the year in which a raft of legal changes for the private rental sector sees landlords (and tenants) navigate a whole new lettings system. It is no exaggeration to say it represents the biggest change for the industry in several decades.
It is expected that all tenancies (both new and pre-existing) will become rolling periodic agreements, with a new ombudsman to resolve disputes between landlords and tenants as well as penalties against landlords not adhering to a ‘Decent Homes Standard’.
Other headlines include:
- the scrapping of Section 21 ‘no fault’ evictions, with the remaining grounds requiring landlords to give tenants longer notice periods.
- the inability to sell or move back into a rented property within the first 12 months of the tenancy.
- two months’ notice to be given for rent increases using a statutory notice not more than once a year, for which the tenants can more easily dispute.
- the inability to accept offers above the marketed rental price.
- the inability to unreasonably refuse a tenant’s request to keep a pet.
- for it to become illegal to discriminate against tenants who receive benefits or have children.
- the requirement to investigate and fix health hazards such as damp and mould (even if caused by condensation…?) within strict timeframes.
All of this is bound to lead to….
Uncertainty - definitely!
Summary3 bed house in ChichesterListed for sale on 19/11/24 @ £325,000Now = £300,000Rent = £1,250pcmYield = 5.0%Last sold for £185,000 in March 2007 (+57% in 18 years)
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