The Intermediary – February 2025 - Flipbook - Page 24
BUY-TO-LET
Opinion
What’s next for
prime Central
London in 2025?
A
mid regulatory shis,
tax reforms, and
changing investor
priorities, the prime
Central London (PCL)
sector has faced some
major challenges in 2024. However,
the outlook for the market is rosier
than many commentators would
currently have you believe.
Tax changes
The Government’s autumn Budget
introduced a 2% Stamp Duty surcharge
on second-property purchases. From
April, the nil-rate threshold will drop
from £250,000 to £125,000, while the
first-time buyer threshold will go from
£425,000 to £300,000.
These changes have likely caused
some property investors to reconsider
their plans, but we expect an uptick in
activity levels in Q1 2025 as property
investors look to complete their
purchases under a lower tax burden.
It’s important, therefore, that lenders
and brokers prioritise speed to support
this demand in what will be an
increasingly competitive market.
Flexibility will also be an important
quality to provide. Given the changes
to the non-domicile tax status, which
is being replaced by a residence-based
regime, many property investors will
be assessing their options.
However, the new scheme allows
qualifying individuals to benefit
from favourable tax treatment for
up to four years, including no tax on
foreign income or gains brought into
the UK. This transition period should,
therefore, mitigate any significant
short-term impact on demand.
Private rental reforms
On the regulatory front, the Renters’
Rights Bill – currently making its
way through Parliament – is likely
24
The Intermediary | February 2025
ALPA BHAKTA
is CEO of Butterfield
Mortgages Limited
to become the Renters’ Rights Act in
2025. Under the proposed reforms,
Section 21 ‘no-fault evictions’ are due
to be abolished, as will fixed-term
tenancies. Both changes will have a
significant impact on the way in which
landlords manage their tenancies and
portfolios, but we aren’t expecting it to
cause the ‘landlord exodus’ that many
are saying is going to occur.
In fact, our recent survey research
actually showed that two-thirds
of surveyed landlords remained
optimistic about their buy-to-let (BTL)
properties. As a result, 38% plan to
grow their portfolio in the next 12
months, and just 10% are looking to
decrease their number of assets .
the desirability of London as an
investment destination remains very
much intact. This is supported by a
recent prediction from Paul Finch
at Beauchamp Estates, who says that
estate agents are bracing for a “wave of
American buyers.”
Looking to escape the domestic
volatility and uncertainty that a
second Trump Presidency could
precipitate, this trend is indicative of a
market that appeals to investors for its
stability and returns.
Bank of England
Prospects for growth
So, where does this optimism stem
from? For the most part, it will be
caused by the outlook for interest
rates, which impose the greatest
influence on PCL market activity.
The Bank of England (BoE) cut
the base rate twice in 2024, and on
both occasions we saw an increase
in confidence and activity across
the property investment landscape.
Looking to the next 12 months,
Governor Bailey has indicated that the
central bank is prepared to cut rates
four times, which would leave the
base rate at 4% – its lowest level since
February 2023.
Lower rates will significantly
benefit the PCL market, where high
property values amplify borrowing
costs. As rates fall, we anticipate that
previously hesitant investors will reenter the market.
The sector’s potential for capital
growth and rental yields is one of the
most significant draws – both of which
are trending positively to achieve
growth in 2025. According to Knight
Frank, the PCL market will grow by
2% in 2025, rising by an additional 18%
in the four years to 2029.
The outlook for rental yields looks
bright as well. With interest rates
predicted to fall and rental price
growth currently siing at 11.6% in
the capital, rental yields are likely to
feel a significant boost in the next 12
months. Such data is likely to aract
more property investors to the market
in 2025, supporting demand and
boosting the prospect of house price
growth and elevated activity.
The outlook in 2025 is brighter
compared to the challenges faced
in 2024. However, hurdles remain,
particularly in the areas of taxation
and regulation.
Property investors and brokers
should seek lenders with the expertise
to help manage portfolios as effectively
as possible in a changing market. ●
Demand from overseas
Demand from overseas is likely
to remain resilient. Of course,
the abolition of the non-domicile
tax status raises uncertainty, but
