The housing market is in the early stages of recovery but a variety of new policies make sustaining it in 2025 uncertain, warns Savills.
The agency says the recovery in residential markets began in 2024, but that sustaining it depends heavily on continued cuts in interest rates to bring more buyers (particularly second and third-time home buyers) back to the market.
With inflation hovering around the Bank of England’s target of 2%, how quickly and how far the bank base rate is reduced will determine the ability and appetite of lenders to loosen their purse strings, according to Savills.
Fundamentally it expects to see the range of buyers and their purchasing power gradually increase over the next five years, albeit stamp duty surcharges and regulatory reform are likely to constrain activity among private buy to let investors.
Consequently, Savills predicts overall house price growth of between 20% to 25% over that period, with 4% pencilled in for 2024.
Savills top investment picks in the residential sector in 2025:
- Family houses in educational super towns: Given the expected drive to find good, affordable education at a time when VAT on school fees is likely to shape where more affluent families put down their roots, Savills expects to see strong demand for family homes near outstanding state schools.
- Multifamily in core cities: Despite more regulation and taxation for public landlords, the living sector continues to attract significant interest from institutional investors. With debt costs coming down, a significant pipeline of consents and renewed government support through the PRS debt guarantee scheme, multifamily is likely to make a resurgence.
- 100 – 250-unit development sites in areas of higher housing targets: Likely to be the sweet spot for developers seeking to rebuild their pipelines as the market improves, from 2025 there will be a window of opportunity to bring forward land for residential developments of this scale in the 55% of local authorities that will face higher housing targets but don’t have an up-to-date Local Plan.
In terms of rural property, Savills suggests that land and land management will remain key to the Government targets on food production, environmental recovery, development, and economic growth, supporting investment
The agency adds that despite the impact of the Budget and poor weather conditions this year, land as an asset class remains a good investment opportunity, given its role in helping the Government meet its various manifesto commitments, plus offers a reliable hedge against inflation.
It also remains a more favourable asset class for tax treatment compared to some other sectors, as selling farmland and generating cash will have worse inheritance tax (IHT) treatment under both current and post 6 April 2026 IHT rules.
While Savills says that the assumption is that the benefit of investing in land due to the tax reliefs has recently diminished, ultimately, it will take a material change in supply and demand dynamics to significantly impact pricing, and this may take some time to materialise.
Given the diverse range of demands on land, it anticipates continuing to see a variety of purchaser types in the land market, some with reasons for investing beyond just tax benefits. Additionally, regional variations in supply and demand will continue to affect pricing. Savills forecasts that farmland values are likely to remain stable over the next five years as businesses plan and adapt, the Government shows leadership in its direction of travel, and confidence and stability increases in the rural sector.
Savills top investment picks in the rural sector in 2025:
- Prime arable land with a resilient water supply: Food production will continue to be an important output from land and, as climate change challenges continue, the focus is on land with a secure, sustainable and resilient water supply
- Land with environmental opportunities: Environmental protection and recovery is at the heart of Government commitments and targets – specifically those stated in the Environment Act 2021. The Environmental Land Management scheme provides financial incentivisation for land managers in England, and more opportunities will be unlocked from the private markets.
