The amount of lending for buy-to-let (BTL) property purchases saw a significant decrease in 2023, as reported by a banking and finance industry body. The number of new mortgage deals for this purpose dropped from 25,280 in the last quarter of 2022 to just 12,422 in the first quarter of the following year.
UK Finance attributed this trend to rapidly increasing interest rates, which made it more difficult for potential BTL buyers to pass lenders’ affordability tests.
Furthermore, the stamp duty surcharge on second and subsequent properties, introduced in 2016, along with the gradual removal of higher-rate income tax relief on mortgage payments for rental properties, have made the landlord role less appealing and more challenging. As a result, the BTL mortgage market has contracted, with the number of outstanding BTL mortgages falling from 2.04 million in the first quarter of 2023 to 1.98 million in the same period of 2024.
According to UK Finance, landlords owning just one property constitute a third of the BTL market. Additionally, 10 percent of BTL mortgages are held by landlords operating as companies.
By the end of 2023, there were 13,570 BTL mortgages in arrears. However, this figure remained stable in the first quarter of 2024, representing a mere 0.68 percent of all BTL mortgages.
Mortgage lenders continue to provide customised support to anyone struggling with their mortgage payments. Despite an increase in rents, UK Finance noted that rising costs have put a squeeze on landlords’ profits.
In a stark contrast to the first quarter of 2018, when landlords enjoyed an average interest cover ratio of 342 percent, figures have plummeted to just 191 percent by the first quarter of 2024.
A staggering 90 percent of new buy-to-let (BTL) lending over the past two years has been secured on a fixed-rate basis.
Despite this, the BTL sector is more exposed to variable rate mortgages compared to the residential market, leading to a higher number of BTL mortgage holders falling into arrears, according to the latest report.
James Tatch, UK Finance’s head of analytics, optimistically noted: “Without more unexpected negative shocks, strong rental demand and strong lending standards could mean the buy-to-let sector emerges from last year’s downturn sooner than previously expected, also that further rises in arrears are limited.”
He added a word of advice for those facing financial difficulties: “Lenders continue to offer a range of support to anyone who’s worried about their finances, with teams of trained experts ready to help. If you are struggling, please reach out to your lender as soon as possible to discuss the support options available.”
