The UK Buy-to-Let Market – An Environment of Opportunity in 2025
This editorial was originally published by Business Moneyfacts Magazine.
Despite the challenging economic conditions that have characterised the last few years, the UK’s Buy-to-Let (BTL) market is showing promising signs of growth and recovery, remaining one of the strongest in Europe by rental yield, which should build confidence among UK and overseas investors alike.
Current market trends
Perhaps unsurprisingly, London is the fastest growing market, with a 13% uplift in new Buy-to-Let landlords between 2023 and 2024, compared to 4% for the previous year. However, rental demand across other UK cities remains high, particularly in geographies with a large population of students and young professionals, including Bristol, Glasgow, Liverpool and Sheffield.
Similarly, UK Finance’s latest market update reported an uplift in the average gross BTL rental yield, which rose from 6.53% to 6.93% in Q3 of 2024, compared to the same period previously. And, while Buy-to-Let rates increased following the Autumn Budget, these remain lower than they were in 2023 which gives further indication that the sector is on a positive trajectory.
It's important to note too that the sector is not only driven by rates, with many providers also tailoring their product proposition to make it more attractive for UK Expat and International investors. For example, at Gatehouse Bank we consistently explore differential criteria strategies with the aim to enhance our proposition and broaden the availability of our offerings to help investors achieve their goals. By identifying unique criteria, we are able to differentiate our proposition from competitors. Our expertise within the international market also strengthens our ability to cater to a diverse range of landlords, making our offerings not only competitive but globally appealing too.
UK housing market remains an attractive option for investors
While recent growth within the market and products tailored specifically with UK Expat and International investors in mind are important, the fact remains that the UK property market has historically appealed to overseas investors due to its economic stability, strong laws and policies and the potential to yield strong returns. For many years, the UK property market has been characterised by high demand and low supply of homes, due to factors such as population growth and historical underinvestment in infrastructure. According to Savills’ latest property market forecasts, this is set to continue into 2025 and beyond, with UK rental growth predicted to surpass 17% over the next five years. This, coupled with the anticipation of further rate cuts by the Bank of England, provides ample opportunities for non-UK investors looking to enter the rental market.
When deciding where to purchase property, geopolitical factors often come into play. Undoubtedly, the pre-existing connection that many Expats already have with the UK will spur them towards the decision to invest in this market. For other International investors, English property laws, which allow tax to be deducted from some expenses such as property management fees, maintenance and insurance also make the UK market a favourable option. We also see strong demand internationally from parents looking to support their children studying at UK universities. Additionally, with such a wide range of investment properties on offer, from metropolitan apartment buildings to countryside homes, the UK offers a wide variety of options based on an individual’s investment goals.
Importance of choice in Buy-to-Let finance options
While there is no shortage of reasons why the UK proves an attractive option for Buy-to-Let property investors, we should continue to push for more choice when it comes to financing these purchases. For example, as a Shariah-compliant provider, Gatehouse Bank caters to customers across various backgrounds, demographics and geographies who are seeking alternative finance options.
Though the UK is a leading Western centre for Islamic finance, misconceptions remain around who these products are for and how they work in practice. At Gatehouse Bank, we are committed to breaking down these misconceptions and raising awareness that the principles of Islamic finance are closely aligned to more ethical and sustainable banking practices. Subsequently, our products are available to those of all faiths, and none.
Our research clearly illustrates a growing appetite for ethical home finance options, with a recent survey revealing that almost half (45%) of UK homebuyers would consider using an ethical finance provider that follows Islamic principles. Further data from Gatehouse Bank’s Islamic and Ethical Finance Report 2024 showed that just under two fifths (37%) of UK homebuyers would be most attracted to Shariah-compliant providers because they do not invest in unethical sectors, such as alcohol, tobacco, adult entertainment, gambling and the arms industry.
At Gatehouse Bank we understand that not all brokers understand the difference between conventional finance and Shariah compliant finance. That’s why our Business Development Managers offer training and development dedicated to ensuring that alternative finance options are not overlooked. For example, when seeking home finance from Gatehouse Bank, our customers enter into a partnership with us to jointly purchase the property. The customer then pays the Bank rent for the portion of the property they do not yet own, as well as a monthly acquisition payment. With every payment, the customer acquires an increasing share of the property until they become the sole owner.
Looking towards the future, we expect to see a mix of challenges and opportunities in the year ahead. In particular, changes to stamp duty thresholds will have a direct impact on aspiring homeowners. Despite this, a sunnier economic outlook presents an environment of opportunity for investors who can navigate the changing landscape effectively.