The UK housing market is poised for recovery in 2025, according to property consultancy Savills, but uncertainty looms as new policies and economic factors shape the future. With interest rates, inflation, and regulatory reforms all playing critical roles, Savills has identified key investment areas that could offer strong returns for landlords and investors.
House prices and buyer demand on the rise
Savills predicts that the housing market recovery, which began in 2024, will continue into 2025, with house price growth projected at 4% for the year and a cumulative increase of 20–25% over the next five years. However, the pace of recovery is tied closely to interest rate cuts.
“How quickly and how far the Bank of England reduces its base rate will determine the ability and appetite of lenders to loosen their purse strings,” Savills explained. Inflation hovering near the BoE’s 2% target could pave the way for lower borrowing costs, attracting more buyers, particularly second and third-time homebuyers.
Stamp duty surcharges and ongoing regulatory reforms, however, may dampen activity among private buy-to-let investors. Despite these challenges, Savills remains optimistic about the market’s resilience and gradual expansion in buyer activity.
Top residential investments for 2025
Savills has highlighted three key areas in the residential market where landlords and investors can capitalise on the market recovery:
- Family homes in “educational super towns”: As VAT on school fees influences where affluent families settle, demand is expected to rise for homes near outstanding state schools. These areas offer stability and long-term growth for property investors.
- Multifamily developments in core cities: Institutional investors continue to favour the private rented sector (PRS), buoyed by government support and a reduction in debt costs. Multifamily developments, particularly in urban centres, are set for a resurgence as housing demand remains high.
- Development sites for 100–250 units in areas with housing targets: Developers are likely to target these mid-sized projects in local authorities with higher housing targets and outdated Local Plans, creating opportunities to meet demand in underserved areas.
Rural investments offer stable returns
For rural property investors, Savills sees continued potential in farmland and land management, particularly as these assets align with government goals for food production, environmental recovery, and economic growth.
Prime arable land with a resilient water supply is especially attractive, given climate change challenges. “Food production will remain a key output, and secure, sustainable water supplies will be critical,” Savills noted.
Additionally, land with environmental opportunities is becoming increasingly valuable. The Environmental Land Management (ELM) scheme offers financial incentives for land managers in England, and private markets are expected to unlock further investment opportunities.
Despite poor weather conditions and the impact of recent Budget measures, Savills emphasised the enduring appeal of land as an asset class. “Land offers a reliable hedge against inflation and remains favourable for tax treatment compared to other investments,” the agency stated.
Farmland values are predicted to remain stable over the next five years, supported by a diverse mix of buyers and regional variations in supply and demand.
Savills’ analysis underscores the opportunities in both residential and rural sectors for 2025, but success will require careful planning and strategic investment.