Living

January 2025 Forecast

Investment to rise, but slower rent growth

Investment is expected to be stronger in 2025, particularly across the Build-to-Rent (BTR) and Purpose-Built Student Accommodation (PBSA) sectors, as the supply and demand imbalance persists. This will underpin robust rent growth, but the pace of growth will continue to decelerate reflecting broader inflation and the stretched affordability of tenants.

Mid-year review

• Living investment totalled £4.3bn in H1 2025, 30% below the same period of 2024. However, BTR investment was broadly stable at £1.9bn. There were also £2.7bn of BTR transactions under offer in Q2 2025, the highest pipeline recorded to date. As a result, BTR investment is expected to reach £4.3bn in 2025, 11% higher than 2024. However, we expect broader living investment to be 7% lower than last year at £10.3bn.
• The supply and demand imbalance persists, with new regulation driving some landlords out. Several factors including higher construction and debt costs, planning delays, and new building safety regulations means the viability of BTR and PBSA development is also still challenging.
• Rents have increased by 2.1% in the first half of 2025, a deceleration from the 4.4% recorded over the same period last year. Rents look set to perform in line with our forecast.

January 2025 Forecast

Affordable housing to be dominated by institutional investment

Demand for affordable housing will remain strong and investment activity is expected to be robust in 2025. In addition, legislation for social rents will buoy investor sentiment. However, investment into new build homes will continue to be led by For-Profit Registered Providers which are unencumbered by commitments to improve legacy stock.

Mid-year review

• The Spending Review was hugely positive for the Affordable Housing sector, with £39bn allocated to the Affordable Homes Programme over the next decade.
• In addition, the confirmation of a ten-year rent settlement of CPI+1% has given certainty to investors, which will underpin confidence and investment into the sector. The potential for rent convergence will be another boon for the sector.
• Although these recent Government initiatives offer a significant boost for the sector, it will take time to materialise and unlock development. Hence, the outlook for 2025 remains unchanged, but the future looks very optimistic.

January 2025 Forecast

Residential sales market will gradually improve

Lower interest rates have improved the outlook for the sales market. Mortgage rates are projected to continue to fall in 2025 which will improve affordability and drive a recovery in sales volumes and house prices. The reversion to the previous Stamp Duty thresholds in April will also boost sales volumes in Q1 2025. Across the UK, we forecast sales volumes to return to their long-run average of 1.2 million, and for house prices to increase by 3.5% in 2025.

Mid-year review

• Fixed mortgage rates have fallen between 20-40 bps since the end of 2024. More importantly, lenders relaxed their stress tests earlier in the year, meaning buyers can now borrow more. This will underpin house price growth and the rebound in the housing market.
• The improved mortgage environment, combined with the Stamp Duty changes in April, boosted sales volumes and house prices at the start of 2025. Sales more than doubled in March as buyers rushed to beat the Stamp Duty change. This contributed to total sales up 30% in the year to April compared with the same period of 2024. Prices also rose 2.5% to March but subsequently fell back in April and are broadly level with where they started the year. The market looks set to perform in line with our current forecasts.

Figure 5: Living investment volumes, actual and forecast (millions)

Figure 6: Forecast of additional borrowing and purchase price of first-time buyers