Is buying a new build property to rent out still a smart investment in 2025?

London’s property market has always been a hotspot for investors. But with shifting economic conditions, is buying a new build for rental still a smart move?

Trends for 2024-2025

UK house prices grew by 4.7% in 2024, but London’s increase was a modest 2%, trailing behind other regions like Northern Ireland and North West England. Despite slower growth, London remains the priciest market with strong rental demand.

Experts predict a steady 2-4% price rise in 2025. Changes in tax laws, such as stamp duty adjustments, may cause temporary market fluctuations.

Rental market outlook

Demand for rentals in London remains high, particularly among young professionals and students. However, rising rents and better mortgage rates could encourage more people to buy. Limited housing supply, high property prices, and a dynamic job market keep renting a preferred option.

Flats in well-connected areas are particularly attractive. New developments are emerging in districts with expanding commercial and social infrastructure, boosting their rental appeal.

Key factors:

• Housing transactions increased by 14% in 2024.
• Buy-to-let mortgage availability has improved but is still below historical levels.
• Mortgage rates have dropped from 2022 peaks, making financing more manageable.

Rental yield potential

At the end of 2024, London’s average property price stood at £525,535.

Rental yields remain stable, averaging 3-5% per year. High-demand areas like East and South London offer yields of 4-5%, whereas central locations see returns of around 2-3%.

Despite potential short-term shifts due to tax changes, rental demand is expected to stay strong. A shortage of rental properties and some landlords leaving the market create opportunities for new investors.

Tax policy changes

From 2025, tax reforms will make investing harder for non-residents. The current system, which allows non-domiciled individuals to avoid tax on overseas income unless brought to the UK, will be revised.

Capital gains tax on residential properties remains at 18% or 24%, depending on income. Future tax changes could further influence investor decisions.

Market prospects

A weaker British pound has made UK property more affordable for foreign buyers. By mid-2024, the pound had fallen by 8% compared to 2023, creating opportunities for international investors.

Despite tax reforms and economic shifts, London remains a solid long-term investment. Historically, property values have risen over time, and rental demand ensures steady cash flow.

For those planning long-term rental investments, new builds offer advantages — especially with current price reductions and a favorable exchange rate.

What type of property should you buy?

The rental market’s most stable segment is small flats, studios, and homes in prime locations.

Promising areas for investment:

• Canary Wharf – A financial hub with many high-earning professionals who prefer modern apartments.
• Stratford – A fast-growing area with strong transport links and competitive property prices.
• Croydon – A key residential development area offering relatively affordable new builds.
• Wimbledon – A prestigious district with strong rental demand from families and professionals.

When selecting a district, it’s essential to consider not just the current market but also city development plans, transport projects, and demographic trends.

Is investing in London’s new builds profitable?

New build investments offer several clear advantages:

• Modern quality standards – New developments use the latest construction technologies, reducing maintenance and repair costs.
• Energy efficiency – Contemporary buildings meet strict energy-saving standards, appealing to tenants looking for cost-effective housing.
• Easier management – New apartments require minimal maintenance in the first years.
• High demand – There is always strong demand for modern flats in well-connected areas.

In recent years, London property prices have fluctuated. According to the Nationwide Building Society, in July 2024, prices dropped by 3.8% year-on-year—the biggest decline since 2009. Halifax also reported an average 2.6% price drop in the first half of 2024.

On one hand, falling property prices provide an opportunity to buy at a 5-10% discount. On the other hand, the rental market remains strong, especially in central districts. According to ONS, in January 2025, the average rent in London reached £2,227 per month—an 11% increase from the previous year. However, growth slowed in late 2024.

Despite this, rental demand remains high. On average, 15 families compete for each available rental property in London—twice as many as before the pandemic. This ensures a stable income stream for property owners.

However, the number of properties on the market is increasing while demand remains subdued. Mortgage rates have risen from 2-3% (in 2022) to 6% (in 2024), making home purchases less affordable for locals. Combined with inflation and recession concerns, this creates an attractive environment for large investors looking to take advantage of market conditions.

Interesting trends:

Investors are exploring redevelopment projects, where old buildings are converted into residential apartments. Some experts highlight that London’s commercial property market is stagnating due to the shift to online business. This opens opportunities for converting office buildings into residential units.

So, What Are the Benefits of Buying a New Build?

• Strong rental demand – Young professionals and international workers prefer modern flats.
• Minimal renovation costs – New properties don’t require major repairs upfront.
• Simplified rental process – High-quality interiors and new furnishings make it easier to find tenants quickly.
• Developer guarantees – Typically valid for 10 years, reducing risks for owners.
• Energy efficiency – New buildings are designed to minimize energy consumption, making them more attractive to tenants.

However, investors should also be aware of potential challenges.

What Are the Risks?

• High entry costs – London new builds remain expensive, requiring significant initial investment.
• Construction delays – If the property is still under development, delays can postpone rental income.
• Uncertain price growth – Economic fluctuations can impact property values. Although London property prices rose by 3.9% in 2024, future trends remain uncertain.
• Additional taxes and fees – Recent UK government tax changes have affected the buy-to-let sector. Adjustments to stamp duty may temporarily impact transaction volumes.
• Management costs – If an investor does not manage the property themselves, they need to factor in property management fees.
• Competition – Some London areas have a high concentration of rental properties, which may affect rental yields.

New build prices are often higher than resale properties, and construction delays can affect investment returns.

Is It Worth Investing?

London's new builds remain an attractive option for investors, especially from a long-term perspective. Strong rental demand and modern construction standards make them a reliable asset. However, it’s essential to carefully analyze the market, select areas with high rental yields, and consider potential economic fluctuations.

Thus, buying a new building in London for rental purposes is a promising yet complex decision that requires thorough research.