Buy-to-let lending increased sharply at the end of 2025, driven by remortgaging activity, while new purchase demand continued to show signs of weakness.
New figures from UK Finance show there were 59,489 new buy-to-let loans advanced in the final quarter of 2025, with a total value of £11.2 billion.
This represented an increase of 18.2% by number and 21.3% by value compared with the same period a year earlier, with the growth largely concentrated in refinancing activity rather than new purchases.
The data also pointed to improving rental returns, with the average gross buy-to-let yield rising to 7.18% in Q4, up from 6.99% a year earlier.
Landlords continued to favour fixed-rate borrowing, with the number of fixed-rate mortgages outstanding reaching 1.46 million, up 2% year on year. In contrast, variable rate loans declined by 9.8% to 466,000.
The average interest rate on new buy-to-let loans fell to 4.77% in Q4, down eight basis points on the previous quarter and 32 basis points lower than a year earlier.
This easing in borrowing costs contributed to a modest improvement in affordability metrics, with the average interest cover ratio rising to 218%, compared with 201% in Q4 2024.
Arrears also showed signs of improvement, with 9,520 buy-to-let mortgages in arrears of more than 2.5% of the outstanding balance at the end of the quarter, down by 910 cases compared with the previous quarter.
However, possessions increased slightly, with 770 buy-to-let properties taken into possession in Q4, up from 700 in the same period a year earlier.
OUTLOOK FOR BUY-TO-LET DEMAND
James Tatch, head of analytics at UK Finance, said: “The buy-to-let market overall was resilient at the end of last year, with the number of loans advanced around a fifth higher than at the same time the previous year.
“But, with growth concentrated in remortgage markets, new demand for buy-to-let purchase remains fragile, falling slightly in Q4 compared with the same quarter a year ago.
“Investors took advantage of falling interest rates to refinance their borrowing, although instability in the mortgage market in recent weeks has pushed up borrowing costs, which may well dampen the growth buy-to-let remortgaging somewhat.
“However, a combination of the regulatory and tax measures already in place, combined with the measures in the Renters’ Rights Bill, which will come into force next month, are likely to continue to weigh down on new demand activity.
“We expect a broadly flat picture for buy-to-let purchase lending this year, compared to levels seen a year ago.”
CLEAR PICKUP IN ACTIVITY
Louisa Sedgwick, managing director of mortgages at Paragon Bank, said: “UK Finance’s Q4 2025 figures indicate that landlord confidence was beginning to improve towards the end of last year. The data shows a clear pickup in activity, with both lending volumes and values up materially on the same quarter in the previous year.
“While the figures pre-date the latest rise in geopolitical tensions and the resulting pressure on rates and mortgage pricing, they still point to underlying resilience in the sector.
“Where conditions are stable and returns remain viable, landlords continue to invest against a backdrop of sustained demand for rented homes and limited supply.”
“A YEAR DEFINED BY PROFESSIONAL RESILIENCE”
Raheel Butt, head of underwriting, buy-to-let, at MT Finance, said: “This data provides a definitive conclusion to a year defined by professional resilience.
“The final quarter saw the momentum of the year-on-year surge in lending value reach its peak. This activity was fuelled by a continued easing of borrowing costs.
“Ultimately, Q4’s performance confirms that the barrier to entry has evolved. New entrants are now by-passers of the low-rate lure of the past, instead entering the market with a sophisticated focus on strategic capital gains and long-term portfolio growth.
“Buy-to-let is not just continuing; it is maturing into a more disciplined, professional and institutionalised sector.”