Market Insight

Residential property investment market set to improve in 2025 as Build-to-Rent thrives

Over the past 15 years, the UK’s residential investment market or Private Rented Sector (PRS) has shifted significantly, moving from net acquisition to net disposal of residential investment stock.
January 14, 2025
Top down aerial view of houses and streets in a residential area UK New Build Estate Agent House Prices 2022
Over the past 15 years, the UK’s residential investment market or Private Rented Sector (PRS) has shifted significantly, moving from net acquisition to net disposal of residential investment stock.

But could the tide be about to turn for the residential investment market in 2025? Partner, Russell Miller, a residential investment expert and LPA Receiver at Vail Williams, explores.

The housing market has faced many a challenge in recent years, all of which have affected its lure as an investment class. Between 2016 and 2024, the proportion of residential property sales classed as investments reportedly dropped from 16% to just 10%.

There are several reasons for this, from legislative changes increasing the cost of property investment and less favourable tax treatments diminishing returns for landlords, to wider market conditions affecting the buy-to-let sector.

As a result, the supply of rental properties in the market has diminished, driving rents upwards due to basic supply-and-demand dynamics.

Meanwhile, many landlords faced higher mortgage payments, have increased rents just to break even.

In some cases, landlords are making monthly losses and have been relying on other income sources, in the hope that capital values rise. Unfortunately, this can lead to defaults and forced sales, as assets are handed over to residential Fixed Charge Receivers.

So, what can landlords and investors expect for the year ahead? Will 2025 bring a residential investment market revival?

2025 poised for residential market improvement

Opportunistic cash-rich investors dominate the current market, often seeking discounts on tenanted properties compared to vacant ones.

Many are focusing their investment efforts on areas of the UK with higher rental yields, diverging from the traditional preference for London and other high-value regions.

We believe 2024 may have marked the bottom of the market, with 2025 poised for improvement.

There are several reasons for such cautious optimism, including:

  1. Gradual reductions in interest rates, leading to more affordable mortgages.
  2. Rising rental prices, driven by limited supply.
  3. Cash-rich investors pursuing better returns compared to the diminishing yields from cash investments.
Whilst the Stamp Duty Land Tax (SDLT) changes reducing the nil rate threshold for all buyers including buy-to-let investors, due to come into force in April, could trigger a brief market spike, this is expected to be a temporary boost.

Thereafter, the market is expected to react negatively to the SDLT changes, which will not only see the threshold reduce to £125,000 for residential investors, but will see surcharge increase from 3% to 5% in the popular pricing band of £125,001 to £250,000.

Meanwhile, there could be more general risks for the residential market in 2025, resulting from the government’s ambitious target to deliver 1.5 million homes throughout its term in office.

This potential acceleration in supply in the market could adversely impact capital value growth, although the ongoing challenges around the planning system could well temper levels of development activity.

The Build-to-Rent Opportunity

That said, one area of more sustained long term residential investment growth has been the Build-to-Rent (BTR) sector.

According to data in the market, total investment in the sector exceeded £3.2bn in 2024, a 20% increase on 2023.

Institutional investors remain highly active, with around 75% of BTR investments tied to development deals for new homes, rather than the transfer of existing stock. The UK’s state-backed pension scheme, Nest, in collaboration with Legal & General and Dutch pension fund manager PGGM, entered into a partnership to invest up to £1 billion in build-to-rent properties.

This sector is expected to thrive as confidence in the broader market and the BTR model grows, particularly in the regional markets, which accounts for 68% of the BTR pipeline.

Together with anticipated reductions in the Bank of England’s base rate which could lower borrowing costs, this monetary easing is expected to improve financial viability  of, and stimulate investment in, BTR projects.

These factors collectively suggest a positive outlook for the UK’s Build-to-Rent market in 2025, with increased investment and development activity expected to meet the growing demand for quality rental housing.

David Podesta, an Associate in the Development Consultancy team at Vail Williams, said: “Whilst multi-family BTR development can be challenging in the regions, especially with build costs and Building Safety Act implications, there is definitely growing investor demand for single family BTR developments.

“Another area to watch is co-living. Already an established part of the residential mix in Europe, with smaller private units and a focus on community, co-living is gaining traction in the UK.”

“The nascent schemes in London are maturing, and we are starting to see more development further north in Manchester, Leeds and Sheffield. A sister-model to BTR, dedicated co-living developments can offer a good return on investment and will be an area to watch in 2025.”

David Podesta, Associate in the Development Consultancy team at Vail Williams LLP.
Headshot photo of David Podesta

Seize the residential investment moment

As the market evolves, opportunities abound for savvy investors ready to adapt.  Whether you’re exploring Build-to-Rent opportunities or seeking the best locations for high-yielding residential investments, the time to plan is now.

Given our residential receivership experience, together with our residential valuation, development and transactional expertise, Vail Williams is well-placed to support you with your residential investment strategy, to ensure you’re positioned to capitalise on the opportunities 2025 will bring.

For more information, get in touch with our residential property investment team.