The trade body says this marks the lowest level of BTL activity for a decade excluding the months of the pandemic during which the housing market was shut down.

Remortgages were also down by 55% year on year to £4.3bn in Q4 2023.

There was a substantial jump in the number of BTL mortgages in arrears of 2.5 per cent or more of the outstanding balance – up by 124% year on year to 13,570 in Q4 2023.

However, UK Finance points out that only 0.68% of all BTL mortgages are in arrears, which is lower than for owner-occupier mortgages, as it has been for many years.

There were 500 BTL repossessions during the quarter, which was an increase of 56% year on year.

Average interest cover ratio (or rental income expressed as a percentage of mortgage interest payments) has fallen by 58 percentage points year on year, and now stands at 180%.

In a post on the trade body’s website, UK Finance mortgage policy manager Ronnell Reffell and data analyst Ermir Selmani say that challenging market conditions, and in particular the current higher interest rate environment, have significantly impacted on the BTL market.

They write: “Interest rates play a pivotal role in property investment, directly impacting borrowing capacity and landlords’ return on investment. 

“With higher rates reducing profitability, we have seen weaker demand for new BTL loans for house purchase.”