What does 2025 have in store for the property and lending markets? Paresh Raja, CEO, Market Financial Solutions, explains what the year ahead could hold.
As the year draws to a close, many may look back on 2024 as a time rife with challenge for the property and lending markets.
However, it is vital that we step back and appreciate the bigger picture and instead characterise 2024 as a year of progress. The markets are in a far stronger, more stable position today than they were a year ago and the wider landscape is one of resilience and dynamism, which will lay the groundwork for exciting opportunities and growth in the coming ahead.
For lenders, brokers, and property investors alike, 2025 holds plenty of promise, driven by improving market conditions, falling interest rates, and the increasing accessibility of finance.
So, what does the property sector have to look forward to in the year ahead?
Challenges in tax and regulation
Taxation and regulation have been centre stage in 2024, presenting hurdles for landlords and investors alike – and this will admittedly continue into 2025. Ongoing discussions around Stamp Duty, updated EPC (Energy Performance Certificate) regulations, and the Renters’ Reform Bill, to name a few, have all stirred concerns.
Among these, the suggestion of a mass exodus of landlords due to tightening regulations has sparked considerable debate. However, market data and sentiment reveal a more measured reality. For instance, one recent survey found that almost two in five (38%) plan to grow their property portfolios over the next 12 months, compared to one-in-ten (10%) who intend to downsize.
So, although some landlords may have opted to exit the market, it’s clear the majority are holding firm and instead adapting to navigate these changes. Indeed, many landlords recognise the long-term value of property investments, especially as demand for rental properties remains strong. Nevertheless, these regulatory shifts will bring the importance of staying informed and proactive to the surface in 2025.
A positive trajectory for interest rates
One of the most promising developments for 2025 is the anticipated decline in interest rates. Unsurprisingly, falling rates are poised to be the single largest driver of increased market activity and renewed optimism, as has been demonstrated by the market reaction to the two cuts the Bank of England has already made this year.
Bank of England Governor Andrew Bailey’s signals of four base rate cuts in the coming months point to a much-needed boost in affordability. Falling interest rates will not only reduce monthly mortgage payments for existing borrowers but also unlock opportunities for those who may have delayed purchasing or investing during the high-rate environment of recent years, such as first-time buyers.
For BTL landlords, these declining rates could mean improved profitability as well as the chance to refinance on more favourable terms. These developments are likely to translate into increased market activity as buyers and investors will have greater capital to deploy.
Forecasting growth in property
The ripple effect of lower borrowing costs means that landlords’ potential returns – both in terms of capital growth and rental yields – are likely to rise next year. According to Savills, for example, prices will rise by 4% in 2025, before increasing by 23.4% by 2029.
Meanwhile, rental prices are set to grow by 4.5%, according to Halifax, which will allow rental yields to rise should landlords’ borrowing costs fall in line with the base rate.
Residential markets aside, the gradual recovery in office and retail spaces, paired with the ongoing strength of the industrial and logistics sectors, will contribute to growth in the commercial property space – a sector that could provide some intriguing opportunities in 2025.
Specialist finance has a role to play
It would be remiss of me to suggest that the lending landscape will not remain complex in the new year, which is why so many mainstream borrowers are turning to specialist lenders.
Drawn by their ability to offer greater flexibility and faster decision-making, I believe this trend will continue into 2025 as borrowers struggle to find the finance they need from mainstream lenders, who have tightened their lending criteria in response to the Bank of England’s rate cycle.
For this reason, the agility and tailored solutions provided by specialist lenders will remain a key driver of market activity.
Looking ahead
As we look forward to 2025, there’s every reason to be optimistic about the property market. The foundations laid in 2024 – a stronger market position, an improving interest rate environment, and the growing role of specialist finance – have set the stage for a successful year ahead.
The industry has ultimately done itself proud, having, despite adversity, primed the market for growth once a more affordable borrowing environment is created. The year ahead is sure to be one of growth and opportunity for lenders, brokers and investors alike.
Paresh Raja is the founder and CEO of Market Financial Solutions, a London-based specialist lender that provides bridging loans and buy-to-let mortgages. Prior to establishing Market Financial Solutions in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.
