Three important trends for first-time landlords entering the buy-to-let market in 2025

Darrell Walker, director of sales & distribution at ModaMortgages, explores how first-time landlords can navigate the market in the year ahead.

There was no shortage of negativity surrounding the UK’s buy-to-let sector in 2024. The convergence of higher borrowing costs, tax changes and regulatory reform fuelled the longstanding debate as to whether there would be an ‘exodus’ of landlords from the market.

Cut through the noise, however, and the reality is quite different. Pegasus’ latest Landlord Trends report, for instance, underlined that profitability in buy-to-let has remained strong over the past five years¹ (87% of landlords are currently reporting a profit), while rental yields hit a 10-year high of 6.5% in Q3 2024².

For all the speculation, the appeal of buy-to-let is clearly still there, and with good reason. Not only do buy-to-let investments allow for potential capital growth and ongoing rental yields, but the solidity – literally – of the asset is attractive. People enjoying owning something they can see, touch and use; it’s far removed from stocks and shares or bonds.

In my view, talk of a landlord exodus is greatly exaggerated, and there’s actually a healthy flow of new property investors entering the market, which is a positive development. For context, between 2008 and 2021, the number of privately rented households in the UK rose from 3.1 million to 4.4 million³, with new landlords complementing a growing number of portfolio landlords.

Looking ahead, undoubtedly there will be many individuals considering their first foray into the buy-to-let sector. This poses some interesting questions – after all, making one’s first buy-to-let investment presents challenges for both the new landlord but also the brokers they work with to secure a mortgage.

Here are a few interesting trends to monitor…

1. All eyes on the Bank of England

The Bank of England’s base rate has dominated discussions across the UK property market over the past three years. Having hiked the base rate from an all-time low of 0.1% in December 2021 to 5.25% in August 2023, the central bank has more recently made two cuts, bringing it back to 4.75%⁴.

Uncertainty stemming from October’s Autumn Budget, coupled with above-2% inflation in recent months, curtailed further rate cuts in late 2024, but economists are still predicting between two and four cuts to the base rate in 2025⁵. Naturally, a falling base rate will offer encouragement to all manner of property buyers, not least first-time landlords.

As the political and economic climate stabilises after a period of turbulence, it’s possible that prospective property buyers and first-time landlords who had been biding their time over the past 12 months will decide that 2025 is the right moment to enter the buy-to-let market. Brokers and lenders must be ready to respond to any such uptick in demand from landlords for buy-to-let mortgages, marrying the right products with suitable support, especially for new landlords that will lack experience in the processes involved in securing this type of loan.

2. Support required around tax and regulatory reform

Indeed, support will likely be a watchword in the buy-to-let mortgage market in 2025. The arrival of a new Labour government six months ago has inevitably brought with it changes for the PRS, spanning both tax and regulation.

From stamp duty surcharges to incoming EPC rules, first-time landlords will need additional education and guidance to remain abreast of the changes taking place across the buy-to-let market. Yes, as with any investment, a new landlord must develop a strong understanding of the market they’re entering, but there’s also an onus on lenders and brokers to ensure pertinent reforms and trends are communicated to clients.

Ultimately, it’s positive to see new investors and first-time landlords enter any market. This helps drive progress over time, and more broadly it ensures the buy -to-let sector has greater fluidity, with portfolios starting, growing and evolving over time to suit each individual landlord’s wants and needs.

That first-time landlords require extra considerations for brokers and lenders is well established, but a pragmatic approach, combined with a willingness to lend, can ensure new landlords are able to pursue their ambitions to enter the buy-to-let market in 2025 – after all, this market is constantly evolving, and welcoming new investors into the private rental sector is a valuable means of keeping it dynamic and inclusive.

Darrell Walker is the director of sales & distribution at ModaMortgages. Part of Chetwood Bank, ModaMortgages is the home of ‘smarter, faster, simpler’ buy-to-let mortgages, making it easier for brokers and landlords. It will lend to small or large portfolio landlords, limited companies, individuals, first-time buyers and first-time landlords.

Sources:

¹ Pegasus Landlord Trends Report Q3 2024 (slide 22)

² Pegasus Landlord Trends Report Q3 2024 (slide 23)

³ https://www.gov.uk/government/statistics/english-private-landlord-survey-2021-main-report/english-private-landlord-survey-2021-main-report

⁴ https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

⁵ https://www.bnnbloomberg.ca/investing/2024/12/04/boes-bailey-signals-expectation-of-four-rate-cuts-next-year/