The number of new mortgage deals being granted for buy-to-let house purchases fell from 25,280 in the fourth quarter of 2022 to 12,422 in the first quarter of this year, UK Finance said
The amount of lending for buy-to-let (BTL) property purchases saw a significant drop in 2023, more than halving, according to a report from an industry body in banking and finance.
The number of new mortgage deals approved for this purpose fell 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 largely to the sharp increase in interest rates, which made it more difficult for prospective BTL property buyers to meet lenders’ affordability criteria.
The organisation also pointed out that the stamp duty surcharge introduced in 2016 on second and subsequent properties, 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.
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.
The body further noted that 10% of BTL mortgages are held by landlords operating as companies. At 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% of all BTL mortgages, as stated by UK Finance.
Mortgage lenders continue to provide customised support to anyone facing difficulties with their mortgage payments. Despite rents going up, UK Finance highlighted that rising costs have put a squeeze on landlords’ profits.
In the first quarter of 2018, landlords’ rental income covered average mortgage costs by 342%, but by the first quarter of 2024 this figure fell to 191%. Around 90% of new BTL lending in the past two years has been at fixed rates.
However, compared to the residential sector, a larger proportion of BTL mortgages are on variable rates, contributing to a proportionally higher number of BTL mortgage holders falling into arrears, as highlighted by the report.
James Tatch, head of analytics at UK Finance, optimistically stated: “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 continued, emphasising the support available to those in financial stress: “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.”