Is Now a Good Time to Buy a Rental Property?

Is Now a Good Time to Buy a Rental Property?

Property investment can be a lucrative way to generate a steady passive income but there are lots of factors to consider before you decide whether it is the right choice and whether it is the right time to buy a rental property.

When you consider other investment options, investing in property is deemed to be a lower risk than investing in stocks and shares, for example. However, you might be wondering if now is a good time to invest, based on current interest rates, house prices and landlords’ legal requirements.

This article explains the factors to consider so you can make an informed decision.

Interest rates

With the Bank of England base rate hitting a 17-year high of 5.25% in 2024, anyone taking out a mortgage in that period will have been paying higher interest rates than in recent years. However, the rate has been gradually falling and in February 2025, the base rate was reduced to 4.5%, making mortgage interest payments more affordable. 

Many finance experts are predicting that mortgage rates will continue to fall in the upcoming months and years. So, for property investors who require a mortgage to buy a rental property, falling interest rates are a significant positive.

Supply and demand

Another important factor to consider before purchasing a buy-to-let property is whether there is a higher level of demand compared to supply of rental properties. For a long time, there has been a housing shortage in the UK, meaning that the demand for rental properties has remained high. 

However, the level of supply and demand can differ across areas, so you should always look to invest in an area where there is high demand. You can check this by researching how long rental properties stay on the market in the area you are looking to buy. 

There have been a lot of changes to landlord tax obligations in recent years, including increases to stamp duty for buying second properties. The tax changes have resulted in a large number of landlords selling their rental properties. This means that there are fewer rental properties available, so demand increases as supply falls.

House prices

When you buy a rental property, the largest outlay will be the property purchase and lower house prices make rental properties more affordable. The other aspect to consider about house prices is whether your capital is likely to increase in value i.e. from the value of the property increasing.

When house prices are fluctuating, landlords may be reluctant to buy, especially if there is a fear that house prices are about to fall. Since the COVID-19 pandemic, the housing market has fluctuated more than usual, which has put some investors off. It is understandable that investors are worried that the value of their property could fall.

However, as a long-term investment opportunity, house prices nearly always increase over a period of 5 or 10 years. The only exception to this in the last 25 years was a consequence of the financial crisis in 2008, when house prices crashed and took over 7 years to recover.

The average house price in England in November 2014 was £202,704 according to Land Registry. Ten years later in November 2024, the average price has increased to £306,494, so investing in a property over a period of at least 10 years should usually see a significant capital gain.

Landlord tax and rule changes

Recent changes to tax obligations and landlord rules are also factors to consider. The second home stamp duty surcharge to buy a rental property is now 5% on top of the regular SDLT rates. 

Another recent tax change is the reduction of capital gains allowance for residential properties. This could potentially mean you pay more CGT when you sell a rental property than you would have previously. However, it is impossible to predict whether further CGT tax changes could be introduced over the period of owning the property.

The Renter’s Rights Bill will bring a number of changes to help protect tenant’s rights, but the new legislation should not have any major impact on landlords who follow the correct legal processes. You can read more about this in our guide to the Renters’ Rights Bill.

Rental yield calculations

When assessing whether any type of investment is worthwhile, the key decider is the projected return on investment (ROI). To calculate the ROI for rental property, you can calculate the predicted net rental yield, which incorporates the rental income, property value and annual costs. 

The net rental yield is calculated by subtracting annual expenses from the annual rent, then dividing by the property value and multiplying by 100. This gives you a net yield percentage to work out whether the investment will be worthwhile. 

As well as using the projected rental yield, if you are considering investing in property, the potential capital gain as the property value increases, is where you should also see a worthwhile return on investment.

Conclusion

If you a considering buying rental property, these are some of the most important factors to consider. The recent decrease in mortgage interest rates and prediction of further decreases in 2025 and onwards should provide landlords with a higher rental yield compared to when the Bank of England base rate was 0.75% higher.

The long term capital gains of property investment and lower level of risk, also make this type of investment more attractive than other options such as buying stocks. While the additional second home surcharge and reduction in CGT relief is not ideal for landlords, there is still a good opportunity to make a worthwhile return on property investment.