UK Buy-to-Let remains an environment of opportunity in 2025
By Lottie Dougill, Head of Home Finance Distribution at Gatehouse Bank
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 (1), which should build confidence among UK and overseas investors alike.
Current market trends
Perhaps unsurprisingly, London is the fastest growing market(2), 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(3) reported that the average gross buy-to-let rental yield for the UK in Q4 2024 was 7 per cent, compared with 6.74 per cent in the same quarter in the previous year. In addition, the average rate across all new buy-to-let finance in the UK was 5.09 per cent in Q4 2024, 0.13 basis points lower than in the previous quarter, and 0.61 basis points lower than in the same quarter of 2023.
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. Finance providers in general, and Gatehouse Bank in particular, consistently explore differential criteria strategies with the aim to enhance their proposition and broaden the availability of their offerings to help investors achieve their goals. By identifying specialist criteria, providers are able to differentiate their proposition from competitors. Expertise within the international market also strengthens a provider’s ability to cater to a diverse range of landlords, making their offering 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’ property market forecast(4), this is set to continue in 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, providers should continue to promote a range of financial solutions to support customers aspirations. For example, bridging finance can be a viable option when a customer is needing a short-term finance to fund the gap between buying a property and selling an existing one. Other options include a rental top-up facility where a customer’s personal income may also be taken into consideration when assessing affordability, or a Shariah-compliant provider, such as Gatehouse Bank, that caters to customers across various backgrounds, demographics and geographies who are seeking alternative finance options.
Particularly relevant to Expat and International residents is whether a UK credit footprint or UK address is required, and some providers may not require this. Other factors to consider include whether a customer’s application will be considered from the country from which they are applying, and whether their application will be considered based on their status – be it an individual, UK registered corporate entity or even if they are a first time buyer or landlord. Product options should ideally cover portfolios, HMOs (House in Multiple Occupation) and MUFBs (Multi-Unit Freehold Block).
(1) euronews (https://www.euronews.com/business/2024/05/20/europes-best-and-worst-property-markets-where-to-invest-in-2024)
(2) Research from Simply Business (https://www.simplybusiness.co.uk/knowledge/buying-and-selling/best-buy-to-let-areas/)
(3) https://www.ukfinance.org.uk/data-and-research/data/buy-to-let-lending
(4) https://www.savills.co.uk/insight-and-opinion/research-consultancy/residential-market-forecasts.aspx
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