It’s that time of year again… and our property predictions for 2025 are incoming!

As we write this, 2024 is gently but quickly slipping the history books. As always at this time of year, we do a round-robin of friends and colleagues in the property investment sector and ask them for their predictions for the next year.

Since this has become something of a festive tradition, we’re not going to skip it this year, or as Dickens said “the country’s done for”!

But first – how did our panel do with their predictions for 2024? Who had a sneaky wee ADS rise right at the end of the year on their bingo card? Did anyone correctly predict the arc of interest rates throughout the year?

Without further ado, let’s have a quick recap of what was said last year.

2024’s predictions – how did they do?

Without revisiting all the predictions in detail, we can summarise; not too badly! If you’d like to do a more detailed analysis, you can read the full article, Scottish Property Predictions for 2024, here.

Essentially interest rates were expected to start falling, rents and property prices would hold up although increases in both would slow and demand would continue to outstrip supply.

What no one foresaw was the General Election and the demolition of the Conservative government. That has thrown a large spanner in the works, south of the border especially.

Landlords in England can now expect to see Section 21 evictions disappear and will have to cope with a raft of new legislation aimed at empowering tenants further.

Here in Scotland, most of our contributors made mention of the uncertainty surrounding what would follow the end of the rent cap in March 2024. The answer, we now know was – nothing, at least until the Housing Bill finally becomes law.

Since that is some time off, the private rented sector (PRS) is using the intervening period to lobby the Scottish government hard, particularly on the subject of the proposed Rent Control Areas.

That’s all for the future. On the whole, 2024 was a notably better year for the PRS in Scotland than 2023 had been, and our contributors got that right.

So – what are the property predictions for 2025?

Predictions for the PRS in 2025

Our first prediction comes, appropriately, from John Blackwood. His position as CEO of the Scottish Association of Landlords, and his wealth of experience, makes him ideally placed to comment on the PRS in Scotland.

“Like last year, 2024 has certainly proven to be another challenging one for landlords and letting agents where we have seen political changes both here in Scotland and the wider UK.

Despite politicians saying they value the role we play in providing much needed housing, the threat of rent controls and the increased tax burden on landlord investors entering the sector deters much needed new investment.

Political change has certainly altered the mood music from our politicians towards private letting, but we must now see those words backed up by action to support an ever important private rented sector (PRS).

In 2025 we will see the passage of the Housing (Scotland) Bill through the Scottish Parliament which will herald a new era of rent controls in the PRS.

Though we will all be lobbying for amendments to change legislation to make it more acceptable to private investors, this will be a game changer for many.

SAL, as always, continues to provide the vital service of supporting us all in such difficult times. Giving voice to our members and empowering private renting is central to what we do and our team looks forward to meeting that challenge in the coming year.

While we can speculate what 2025 might bring, one thing we do know is that there will still be a need for us all to provide much needed homes for people to live in.

The next year will certainly be a time for us all to adapt our lettings businesses to survive and hopefully, in time, thrive, and SAL is proud to be there to help you on that journey.”

Next, we asked Kessar Salimi, mortgage advisor at Freedom Financial, what he thought.

“It’s been a rollercoaster year for interest rates with many global events having an impact.  Inflation is now within the acceptable range for the Bank of England and we have seen two rate cuts already in 2024.

My predictions for 2024 are another two to three rate cuts and the base rate by the end of the year just above 4% – but as we’ve seen before – a lot can happen in a year!

The additional ADS increase to an eye-watering 8% will put off some investors, reduce stock and drive up rents. I can see many more investors now looking to buy portfolios of 6 or more to avoid this additional cost.

I think house prices will increase in 2025 but only by a small amount and inline with inflation. Both me and many of my clients have been capitalising on the slowdown in the market and buying some great opportunities.

Once interest rates settle to an acceptable level more buyers will return to the market and push prices up.

I predict rental demand to slow down too. In university cities like Dundee I think this is partly due to the regrettable decrease in international students.  However, a focus on good quality stock will always give you the best selection of tenants.”

Maurice Allan, Residential Property Managing Director at Lindsays weighed in with his thoughts.

“2024 has been an interesting, and in many ways, a challenging year for the property market in Scotland.

On the face of it we have a busy transactional market with recent (November ’24) figures from the ESPC reporting that the average selling price of property across Edinburgh, the Lothians, Fife and the Borders rose 5.3% annually to £286,263 during September-November.

Sales volumes rose by a significant 24.1% compared to the same time last year and new property listings rose by 7.4% year-on-year.

So, a buoyant and thriving property sector, but recent changes such as the increase in the ADS from 6% to 8% in Scotland (compared to 5% in England and Wales) would indicate that the investor landlord is being discouraged from investing.

Whilst this will lead to more properties being available to owner occupiers, the negative effect is likely rent rises as supply reduces. Times on the market are marginally increasing compared to previous years and chains are becoming more common.

On the positive side, mortgage interest rates are stable and demand for property is generally good. There are, of course, regional variations but major population hubs such as Edinburgh, Glasgow and Dundee are seeing high levels of activity.

Looking forward to 2025 I would forecast modest price rises, but due to a potential over-supply of ex rental properties there could be some challenges for landlords looking to exit the rental market.”

“The shadow of rent control and increasing legislation looms large over the private rented sector with the Housing (Scotland) Bill set to conclude its stages in the Scottish Parliament next year.

There are still more questions than answers on the specifics of the Bill, in particular the regulation-making powers in the legislation that allow for certain types of property to be exempted, or rents increased above the cap.

A key consultation will be brought forward in early Spring 2025 to bring clarity on the circumstances where such exemptions may apply and support how these powers may be used.

Despite the baffling decision by the Scottish Government to raise Additional Dwelling Supplement under Land and Buildings Transaction Tax (LBTT) from six to eight per cent, a review of LBTT will commence in Spring 2025. 

We are also likely to see legislation for warmer and more energy efficient homes in Scotland as part of the Scottish Government’s response to the climate crisis.

It is anticipated that the legislation will include measures to prevent the use of certain direct emission heating systems after 2045 and to require certain properties to meet a minimum standard of energy efficiency.

Earlier this year the Housing (Cladding Remediation) (Scotland) Act 2024 was passed to address the risks posed by unsafe cladding on residential buildings.

The Act is expected to be commenced in early 2025 alongside the introduction of a building safety levy to provide money to support the funding of the Scottish Government’s Cladding Remediation Programme; currently under consultation.

Finally, letting agents and landlords also need to be aware that the Scottish Parliament passed the Bankruptcy and Diligence (Scotland) Act 2024 which includes an enabling power to introduce a Mental Health Moratorium in Scotland.

Draft regulations are being developed as well as a consultation that will conclude early next year on the details of the Moratorium process such as how the moratorium should interact with eviction action for rent arrears.”

Here’s what Jack Gallagher, Director at Western Lettings, had to say:

“The sales market in Scotland appears exceptionally resilient, with price rises of around 5% in 2024. Interest rates have peaked and are currently back down to 4.75%.

Household incomes are slightly up, giving affordability a boost. Supply constraints remain an issue, which will support prices over 2025. Overall, I expect transaction volumes to hold steady and house prices to rise in line with inflation.

The most significant effect in the rental market is the continuing exodus of landlords, due to an increasingly unfriendly regulatory environment.

On its own, the recent increase in Additional Dwelling Supplement (ADS) from 6% to 8%, will discourage many landlords from investing.

One glimmer of hope is that the rent control proposals in the 2024 Housing Bill are a re-casting of the Rent Pressure Zone (RPZ) legislation which came into force in 2017.

These required councils to apply for an area to be designated as an RPZ if they considered rents to be rising too rapidly.

No council in Scotland applied, and I expect the measures to be equally unpopular in the next incarnation, which will likely come into force in 2026. In the meantime, we are living in a country which currently has no restrictions on rent increases.

That said, for the first time in a few years, we have started struggling to find tenants unless asking rents are reduced.

We’re in a situation where rents are sky high and landlords are leaving the market, but the demand from tenants has fallen more sharply than the supply of tenancies, so properties are languishing on the rental market.

We are meeting resistance from landlords when we suggest they lower their rental expectations. Rental data already shows some pockets of Scotland, including Glasgow, where rents have started to fall.

My prediction is that rent inflation in Scotland will be slightly negative over the course of 2025. Perhaps as low as -5%. If my prediction is anywhere near accurate, we will see an acceleration of landlords leaving the market.”

Advice from the property pros

It would be fair to say that the predictions for the coming year are not all sunshine and roses. A repeated theme is that of upcoming legislation and the impact that could have on the PRS.

There is no question that the Housing (Scotland) Bill is expected to have a direct impact on the private rented sector. Although there are vigorous lobbying efforts being undertaken, we shall have to wait to see what form the final Act takes.

Jack’s take on this is interesting however, pointing out that when equipped with similar powers some years ago, Scottish councils declined to use them. Jack is also our only contributor who speaks of experiencing declining rents.

If rents stall, or slip backwards, that also reduces the temptation for councils to use wherever powers they are ultimately granted. That said, in that situation, the number of available rental properties will most likely decrease as landlords quit the market.

Ironically, in 2024, we have seen a more active market, at least in terms of transaction numbers. This is likely due to reduced interest rates and greater fiscal stability, both conditions which would normally encourage the PRS.

Kessar’s comment regarding reduced international student numbers was also interesting, as it’s an example of a policy in one area which ends up having a negative impact on a seemingly unrelated area. Such is the joy of policy decisions!

In summary…

After a reasonable year for the PRS in 2024, there are some serious question marks hanging over 2025, many of them legislation-shaped.

The Scottish Government’s decision to raise ADS to 8% was unwelcome, unhelpful and indicative of a confused housing strategy. Since all markets thrive in stable environments, any element of uncertainty is unwelcome.

Despite appearing to relax their attitude to the PRS, the government’s actions are not yet supportive of their kinder words. This in turn raises questions about just how cohesive their plan to tackle the housing crisis really is.

With the private rented sector providing a steadily increasing percentage of homes in Scotland, it is – or should be – inconceivable that a policy intended to improve and increase housing in Scotland wouldn’t include and encourage landlords.

So all of this points to a new year which could be challenging for landlords and investors alike, and no-one should forget that if those groups are struggling, the tenants who rely on them will struggle too.

We would encourage the Scottish Government to think long and hard about what they want to achieve and how they are going to achieve it. The numbers alone should tell them that the PRS has to be a vital component of any solution.

We’ve no desire to end this on a downer! The PRS is a resilient sector and it has weathered many storms in the past, and will weather more, we have no doubt. It has survived and thrived.

For landlords and investors, the long-term nature of property investment is strongly in their favour. There will be elections in Scotland in 2026, and who knows what the Scottish parliament, and its policies, will look like then.

Hold fast – despite all of this there are opportunities out there!

And so, we’ll wish you a very Merry Christmas and a Happy New year – may it not prove quite as much of a challenge as our predictions suggest!

Do you have any property predictions for 2025?

Written by Chris Wood, MD & Co-founder of Portolio, and Ross MacDonald, Director of Sales & Co-founder of Portolio

Get in touch on 07388 361 564 or email to [email protected]