Is Buy-to-Let Still a Good Investment?

As we progress through 2025, following a relatively earth-shattering Autumn Budget by the new Labour Government and an opinion-dividing economic forecast, many current and prospective landlords are questioning the long-term value of their investment choices.

With interest rates and inflation still high (despite some recent stabilisation), tightening regulations and imminent tax changes, there is arguably no more crucial time for landlords in the private rental sector. For context, we recommend revisiting our guide covering the key dates to keep a close eye on in 2025 if you’re a landlord having invested in one or more rental properties.

One of the key questions some private landlords are asking is whether buy-to-let properties – a topic of debate in their own right – are worth considering given the short-term economic outlook. A detailed breakdown reveals a more nuanced and complex picture than the headlines might suggest.

An Overview of the Current Rental Market Conditions

If recent months are any indication, the buy-to-let rental market has undergone a significant shift.

UK Finance forecasts a 7% contraction in buy-to-let purchase lending to £9 billion in 2025, primarily due to Chancellor Rachel Reeves announcing a 2% increase in stamp duty surcharges for landlords that own more than one home. In other words, landlords or anyone owning a second property on top of their own residential home must now pay a 5% surcharge.

However, rental demand remains robust, with private rents rising by 9.1% in the year to November 2024, reaching an average of £1,319 across Britain.

Regional variations tell a very interesting story. According to recent rental yield data by TrackCapital, Scotland currently has the highest average yield of 6.18%, followed by the North East of England at 5.18%.

London has been touted as a prime area for investors for some time, offering low interest rates, attractive rental yields (4.40%) and strong capital growth potential. Areas like Barking and Dagenham, with average property prices of £346,176 report average rental yields of 6.20%. However, contrastingly, Westminster boasts only a 2.30% yield despite the average property price being just over £2.2 million. This mere snapshot illustrates just how the London property market is at such polar opposite ends of this spectrum.

Government policies and market dynamics encompass the most recent disruptors that have caused a ripple effect for landlords. Stricter energy efficiency and EPC regulations for landlords have also mandated upfront investment from landlords to make properties more attractive to tenants. This isn’t even considering the ongoing Section 24 restrictions which are impacting tax relief, particularly for higher-rate taxpayers. With landlords no longer able to deduct mortgage interest costs from rental income, their tax bills will be higher. Coupling this with higher-than-average mortgage interest rates and rising energy and maintenance costs, landlords’ profit margins are shrinking.

The demand for rental properties remains high, driven by a growing number of tenants unable to afford their own homes.

Furthermore, the Renters’ Rights Bill (currently sitting in the House of Lords) is a parliamentary bill that will come into force in the coming months. The changing rights of both tenants and landlords, most notably the abolishment of ‘no-fault’ evictions, will no doubt influence the decisions of landlords investing in buy-to-let properties in 2025.

Investment Opportunities in the Buy-to-Let Market

Despite these challenges, certain market segments continue to offer attractive returns.

As per the TrackCapital data, popular university cities like Manchester and Nottingham are showing remarkable resilience, with some postcodes achieving yields above 12%. As a result, the growing student and professional communities, along with intense community investment and regeneration plans have collectively led to property price increases of between 33% and 41%, offering a healthy balance of capital appreciation and rental income for investors in these areas.

London’s rental property investments, particularly in emerging areas, remain attractive for those with sufficient capital, driven by consistent tenant demand and professional renters.

Strategic and ambitious investors would be wise to devote their attention to regional cities with strong student populations and neighbouring universities, areas primed for (or are in the midst of) infrastructure investment, and locations with growing numbers of working professionals.

Final Considerations

Before taking the plunge into the private rental sector as a new or seasoned landlord, investors with access to capital should thoroughly research the local rental yields, demand patterns and property prices. Factoring in all costs, including the new stamp duty rates, while being mindful of upcoming regulatory updates, will be the wisest possible move.

For complete peace of mind, landlords should secure comprehensive landlord insurance to protect their investment(s) and consider the help of professional property management experts to help them navigate potential obstacles.

While 2025 presents challenges, buy-to-let remains a viable investment strategy for those who approach it strategically. For those considering entering the market for the first time or expanding their property portfolios, working with impartial, experienced third-party professionals is becoming increasingly vital for helping them maximise their potential returns.

For expert advice on protecting your buy-to-let investment and ensuring you have the right insurance coverage in place, contact ProtectMyLet today.