The Spring Statement 2025, delivered by Chancellor Rachel Reeves, didn’t introduce any new tax rises but did confirm significant spending cuts. These measures, alongside economic forecasts from the Office for Budget Responsibility (OBR), offer insights into how landlords might be affected in the short and long term. Read on to understand the implications of these updates for landlords and the rental market.
Spending Cuts and Growth Forecast
Chancellor Rachel Reeves kept her promise of avoiding new tax hikes, instead focusing on cutting government spending. Key spending cuts include:
- £5 billion reduction in welfare spending
- £6 billion cut to international aid
- A 15% reduction in the running costs of the civil service, targeting savings of £2 billion by 2030
In terms of economic growth, the OBR has halved its 2025 growth forecast from 2% to 1%, reflecting slower-than-expected economic activity. The UK’s economy shrank by 0.1% in January 2025, following minimal growth in the final quarter of 2024. However, the OBR has forecasted more optimistic growth rates for the years ahead, including 1.9% in 2026, 1.7% in 2027, 1.7% in 2028, and 1.8% in 2029.
How Could This Impact the Rental Market?
The UK’s slow economic growth and ongoing cuts to welfare spending may have an adverse effect on the rental market. A more sluggish economy can lead to reduced consumer spending power, which in turn may limit the amount tenants can afford to spend on rent.
With welfare cuts reducing tenants’ disposable income, rental growth in 2025 is expected to slow down. Although rents are still forecasted to rise, they won’t increase at the same rate seen in recent years. For landlords, this means that average yields could be lower, making it crucial to stay on top of financial planning and look for ways to optimise costs and improve efficiency.
What Landlords Can Do
In response to slower rental growth, landlords may want to adjust their expectations for income in the coming year. Tightening budgets, reviewing expenses, and evaluating rent increases carefully will be important to ensure that properties remain competitive and profitable.
Rising Inflation and High Interest Rates
Landlords with buy-to-let mortgages will continue to face challenges due to inflation and high interest rates. Currently, inflation stands at 2.8%, and the Bank of England has maintained the base interest rate at 4.5%. This has increased the cost of borrowing for many landlords and investors, as mortgage rates are likely to stay elevated for the time being.
At the Bank of England’s latest meeting in March 2025, it was hinted that the next base rate decrease could occur in August. If the base rate drops, it could help reduce monthly repayments for those with tracker buy-to-let mortgages, potentially encouraging more landlords to enter the market or expand their portfolios. Lower interest rates could also boost tenant affordability, which could support rental demand in the longer term.
What Landlords Should Keep in Mind
With interest rates still high, landlords need to be mindful of the cost of financing their investments. For those with variable-rate or tracker mortgages, ongoing high rates may lead to rising monthly payments. As a result, landlords should review their mortgage terms, look for opportunities to refinance, and consider adjusting their strategies to maintain profitability.
The Bigger Picture for Landlords
The Spring Statement 2025 shows a mix of challenges and opportunities for landlords. While spending cuts and slower economic growth may limit rental growth, lower interest rates in the future could ease financial pressures and potentially open up new opportunities for property investment. The key takeaway for landlords is to remain adaptable, plan for slower rental growth, and continue monitoring the financial landscape to make informed decisions.
As we head further into 2025, landlords will need to stay proactive and keep an eye on both regulatory changes and the broader economic environment to navigate this evolving market effectively.
