What Does the London Buy-to-let Market Look Like for 2025? 

With interest rates reaching the highest levels for 16 years in 2024, the UK property market experienced a slowdown in property sales with mortgage affordability constraints and buyer caution being the main reasons for this.  

For buy-to-let landlords, the current financial climate has advantages and disadvantages. Landlords who have mortgages on their buy-to-let properties are impacted by higher interest rates but the demand for rental properties increases. House prices are also impacted by changes in the interest rates. 

Labour’s autumn Budget revealed some significant changes for landlords, including a higher stamp duty surcharge on buying second homes and reforms to the private rental sector under the Renters’ Rights Bill. 

If you are considering buying a buy-to-let property in London areas such as Stratford, Forest Gate, Leyton or Leytonstone, or you already have a London buy-to-let property, you’re probably wondering what’s in store for 2025. 

Read on to find out what the London buy-to-let market looks like for 2025. 

London Buy-to-let Market Outlook for 2025 

While the instability of the economic climate can make it difficult to predict exactly what will happen to the buy-to-let market, property experts have given their insights into the forecasted outlook for 2025. This is what we can expect: 

1 Rental yields 

Savills forecasts that average rents in the UK will rise by around 6% in 2025, due to there being a lower supply compared to demand. Statista predicts that the average residential rent price will increase by 3.5% in London.  

It is worth noting that there is a large disparity in recent rent increases across different areas of London. For example, over the last 12 months, Redbridge asking rents increased by 11.6%, while the City of Westminster saw a much smaller increase if 1.3%.  

Rental yield calculations are based on house prices as well as rental income, so a decline in London house prices in 2024 impacted rental yields but house price increases are expected in 2025, which we expand on in the next sections. 

2 Rental supply and demand 

With higher than usual interest rates continuing into 2025, affordability constraints of buying property means that demand for rental properties will continue to be high. Young professionals are struggling to get onto the property market, driving up rental demand. 

There has been a noticeable trend of an increase in landlords selling up, and more expected following the recent budget announcement, it is likely that there will be an even lower supply of rental properties in 2025. 

Despite there being an imbalance of demand over supply, the London rental market has shown signs that rental affordability in some areas of London has been pushed to the limit. Households renting in London have been spending an average of over 40% of their gross income on recent over the past decade. This is why there has been a lower level of average rent increases in London compared to many other areas of the country and a lower forecast in 2025 for rent inflation. 

3 House prices forecast in London 

House price predictions indicate that house prices in the UK will rise in 2025 and beyond but at a slower rate than in recent years. Also, London house prices are expected to grow slower than other areas of the UK. The 2025 forecasts from Savills expect London average house prices to grow by 2.5%, while areas like the North West should see increases of 4.5%. 

The current trends and outlook for East London differ compared to the overall London property market. Over the last year, average property prices in East London fell by 2% compared to the previous year. Notably, the East London price trends were more favourable than the London average, which fell by 6%. With interest rates having started to fall in 2024 and forecasts of the base rate coming down to 3.75% by the end of 2025, house prices should recover.  

Market Trends to Watch 

For landlords in East London, the house price growth and rental increase outlooks are much more positive than for landlords in other London areas such as Central London. Long term investors can expect to see good capital growth over a 5 or 10-year period but given the volatility in the market, landlords should keep an eye on these trends. 

Best East London Areas for Buy-to-let 

Areas such as Havering, Redbridge and Barking and Dagenham have benefitted from over 11% annual growth in asking rents over the past year, and average house prices are more affordable than other areas of London, so they are good spots for property investment right now. 

The way to work out the best areas for investing in buy-to-let property is to calculate the rental yield.  

The average property price for Barking in the 12 months up to September 2024 was £338,000 with a monthly rent average of £1,490. When you compare the figures to Westminster, where the house price average was almost three times higher at £970,000 but the average rent was just over double at £3,131, Barking is both more affordable and the rental yield is better. 

Rental yield is calculated by multiplying the annual rental income by 12, dividing that number by the property value and then multiplying by 100. So, the rental yields based on the averages are: 

• Barking: £1,490 x 12 = £17,880 

(£17,880 ÷ £338,000) x 100 = 5.29% 

• Westminster: £3,131 x 12 = £37,572 

(£37,572 ÷ £970,000) x 100 = 3.87% 

London Property Investment Strategies for 2025 

Given the 2025 outlook and current market trends, there are still great opportunities for property investors to achieve good rental yields in areas such as Barking, East Ham and Forest Gate, where house prices remain affordable and rental prices have continued to rise significantly. Areas that have excellent transport links, particularly for commuting into London, are ideal for buy-to-let investment. 

With house prices having fallen slightly in 2024, properties are on the market for less than they were a year ago and as house prices are expected to rise through 2025, now could be a good time to purchase a buy-to-let before house prices start to increase by more significant amounts. If you are looking for a long-term investment opportunity, the projected house price increases over the next five years should deliver good capital growth. 

At Highcastle Estates we have been working in the East London property market for many years and have helped landlords to navigate the market trends and achieve good rental yields. If you are looking to invest in buy-to-let property in areas like Barking, Forest Gate or Stratford, we can help. Contact us to find buy-to-let property in East London.