The UK’s rental market could face a significant squeeze in 2025 due to a predicted fall in lending to landlords, according to the mortgage lenders’ trade body, UK Finance. The organisation has described the outlook for the buy-to-let sector as “challenging” owing to extra taxes facing landlords, despite expectations that interest rates and mortgage rates will fall during the year.
Tenants Facing Intense Pressure
In recent years, tenants have faced significant pressure due to soaring rents and competition for available properties. While falling mortgage rates in the second half of this year had led to a “modest recovery” in the buy-to-let sector following a tough 2023, UK Finance predicts that extra stamp duty on the purchase of additional homes, as well as existing regulation and taxes, will cause activity to shrink in 2025.
The trade body has forecast a 7% drop in mortgage lending for buy-to-let purchases in 2025 compared with this year. This prediction is supported by the National Residential Landlords Association (NRLA), which has reported that 31% of landlords are planning to sell properties they rent out in the next two years due to extra cost pressures.
Rising Rental Costs and Affordability Concerns
According to property portal Zoopla, the average cost of renting in the UK has reached £1,270 a month, which is £270 per month more expensive than at the end of the coronavirus pandemic. This has led to calls from organisations like Generation Rent, which lobbies on behalf of renters, for more breathing space to be given to tenants facing cost-of-living pressures.
However, there are signs that the pace of rent rises has slowed as many tenants hit an affordability limit. This could provide some relief for renters, but the overall outlook for the rental market remains challenging.
Potential Hope for First-Time Buyers
While the rental market faces a difficult period ahead, there may be some hope for people who are stuck renting when they want to buy their first home. UK Finance expects falls in mortgage rates and rising wages to improve affordability for those buying a home in 2025, following a similar trend observed in late 2024.
The organisation has forecast a 10% rise in mortgage lending for house purchases next year, although some analysts have questioned this prediction as overly optimistic for lenders. As of March 2025, the average rate on a two-year fixed-rate mortgage is 5.47%, while a typical rate on a five-year deal is 5.25%, according to financial information service Moneyfacts.
Stamp Duty Changes and Market Volatility
The Nationwide, the UK’s biggest building society, has warned that stamp duty changes for many buyers in England and Northern Ireland could create a volatile housing market in the first half of 2025. Looking further ahead, UK Finance expects many people to again find it tough to afford to move or buy a new home in 2026, suggesting that the challenges facing the housing market are likely to persist.
