Hopefully, you’ve set your goals for 2025.
You know the drill. According to the 1979 Harvard study, 84% had no goals, 13% had set written goals but no concrete plans, and 3% had written goals and clear plans.10 years later, the 13% were earning twice as much as the 84%, but the 3% were making 10x what the other 97% were…
Either way, what can get in the way of your property goals? Well, the market, of course. That’s why I spend so much time researching, and frankly obsessing, over it. This article is the result of my obsessions and contains my predictions for the year ahead.
I made no friends in a property meeting in January 2015 when the high-profile keynote speaker asked, “What’s the biggest danger to property investors this year?” and I said, without hesitation, “The interest rate”.
“Why?” he asked. “Because it is the only variable we cannot control,” I replied confidently. That isn’t strictly true, on reflection - for example, we don’t control the regulatory landscape. We know we have a Renters’ Rights Bill coming, and we know pretty much what it looks like (because we have such a large majority in the incumbent party). Minor tweaks may occur, but major changes are unlikely.
Personally, I’m not worried by this. However, there is precedent for this in Scotland (on the 1st of December 2017 the Private Residential Tenancy was introduced, abolishing the fixed term) and in Wales. The rental markets have not yet fallen apart in either location - indeed, all that’s moved is rents upwards (not that that isn’t happening in England!).
I AM worried for student houses in multiple occupation (HMO) landlords, however, because the abolition of the fixed-term tenancy does not benefit. The hacks? Ensure student tenancies end on 30th June 2025 and the next ones start on 1st July 2025. Consider professional HMO or social HMO, but if you’ve paid a premium for a student property in an A4 area, prepare for any or all of the following:
• More risk• Lower returns• Volatility while the market settles.
You can either be proactive, or reactive. I wouldn’t be buying or creating student HMO at the moment (on a macro level), but there will still be niche opportunities where there are major shortages, of course.
What are the macro variables that are relevant, other than the interest rate? Well, firstly we need to remember that the interest rate is not the base rate of interest, that everyone talks about - but the cost of debt is a function of the 5-year SONIA swap rate, the rate at which banks lend other banks money (swapping floating rate debt for fixed rate debt). Then, remember that the interest rate is related to future expectations around inflation, so that holds significant importance.
I first started writing about the oncoming inflation wave in February 2021. At the time, the Bank of England was making enquiries about what would happen if interest rates went negative, but it was obvious that the amount of stimulus that had been injected into the UK economy would be inflationary. It’s been a journey, and one I’ve followed very closely, leading me to form several views and predict the inflation rate with a very reasonable degree of near-term accuracy in the following months and years.
My expectations for 2025 are that, all else being equal, we will hover around the 3-3.25% mark for Consumer Price Index (CPI) inflation (the Bank of England benchmark) for most of the year. Economic slowdown would reduce this slightly, while external shocks could push it the other way (oil prices, energy prices, food supply chain issues, just to name a few). That sort of number is not conducive to cutting interest rates (now thinking of the base rate), but I see the Bank of England base rate ending 2025 at around 4.25%, with two cuts throughout the year—one early and one in the middle of the year. In the current landscape, it is hard to justify going under 4.25% in my view until more of this inflation works its way through the system.
The swap rate at the turn of the year was around 4% for the 5-year, putting the cost of debt in a limited company with no fee attached at about 6% (you can just add a 2% margin onto the swap rate at any time as a loose rule of thumb, although product rates change on a weekly and monthly basis, whereas swap rates change on an hourly and daily basis). I don’t see this materially moving downwards - there’s room for it to go to 3.75% or perhaps even 3.5% which would be very welcomed, but I don’t see things going a lot cheaper than that. As a result, don’t wait to fix rates, but likewise, if your existing investments don’t work at a 6% debt rate, either asset manage them more aggressively (rents up, convert to HMO, short-term rental, or something else) or sell them. There’s no room in this game for negative gearing (where the cost of debt is greater than the gross yield minus operational costs) - it is highly risky, and bad for your wealth, in my opinion.
We also want a healthy labour market, of course, as property/asset owners. Those likely to do the “best” - this is in relative terms, not absolute terms - are those on minimum wage jobs, ideally not in the retail or hospitality sector (manufacturing is also struggling). Their 6.7% pay rise will be well ahead of the rest of the working sector, especially in this year where there is a massive increase in the cost of employing staff (any businesses of size, say employing 10+ staff, if they were all at minimum wage, will see a cost increase of 10.75% per full-time equivalent come April). If you keep your job, you will see a genuine lift in after-tax disposable real income, after inflation.
Rents, however, are up 9.1% at the last count (figures for November 2024 from the Office of National Statistics). That’s going to be above almost anything else, and that tends to be “sticky” - it won’t fall fast, and my expectation for rent rises for 2025 on average is 7%. This, plus a higher-than-average inflation rate, still makes property investment very attractive. Combine it with my expectation for capital growth (I’ve plumped for 3.75% on my “dart” for 2025), which will diminish the nominal value of any mortgages, means that yields should increase over the course of next year, and investors should finish the year looking better off on existing stock than when they start.
So - it’s a year, in my view, where you can do nothing and make money, presuming you already hold some stock. However, that would be a crying shame, because opportunity will be knocking. The major narrative is bound to be around the Renters Rights Bill and how it is impossible to be a landlord, it isn’t worth it anymore, and all that jazz. A smokescreen, to be honest, because those operating at a scale or seeking to operate at a scale are just quietly getting on with acquisition in the background.
Let property is either selling to the “new breed” of institutional landlord of the future - who has worked out that they need 10+ units to make it worthwhile, and are expecting to pick these up over a 5+ or ideally 10+ year business plan - or selling to first-time buyers (FTBs). This only favours two people: the FTB themselves, and the remaining landlords, because that’s one more unit out of a private rental sector that is still growing by demand and number, not least due to significant increases in the population mostly driven by positive net migration.
Resilience will, once again, be a key attribute, parsing the headlines for what is truly relevant, rather than listening to the constant scaremongering that the clickbaiters pump out daily. Make your decisions with clarity, based on facts, data and trends, not what everyone else is saying and doing. Do the same as everyone else, and all you will do is get the same result - I’m sure you know the quote about the definition of insanity!
Be financially attractive, well-organised, well-capitalised and stay hungry, and 2025 can be a great year. At the end of it, the balance of probability says that houses will be yet more expensive, rents will be yet higher, and it will cost more to buy the same stock on January 1st, 2026, than it did on January 1st, 2025.
Hopefully, some of the above can inspire some confidence in my opinion of the direction of travel, and also the relatively non-volatile nature of the returns that I’m expecting in 2025 - and why I’m going to be continuing to build my portfolio in a positive direction.
My goal - in case you are interested – is 125 new units acquired. Numbers aren’t always the best way to do it: because you can buy 125 flats in a terrible location for £20,000 each that is market price or would mean you are overpaying, and just buy a headache - but I like single units (or portfolios of them, or blocks of freehold flats) - because they are tradeable. So, I’m sticking to the numbers. They have to meet my yield criteria anyway.
What’s the PLAN to get there? More relationships with sourcers, auction houses, and property traders. If you can help, please feel free to reach out via my LinkedIn!
Thanks for reading, and I look forward to providing more insights in future issues of Blue Bricks Magazine.
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