Buy-to-let lending drops as landlords face higher rates and more arrears, UK Finance

UK Finance’s latest quarterly report on the buy-to-let mortgage market for Q4 2023 reveals a significant downturn in new lending and increased financial pressures on landlords.

The value of new buy-to-let lending decreased by 55.4% to £6.3b compared to the same period in the previous year, reflecting the challenging economic environment for property investors.

The report highlights that the average interest rate for new buy-to-let loans has risen to 5.7%, up from 3.67% a year earlier, increasing the cost of borrowing for landlords.

Despite these challenges, the average gross rental yield saw a slight increase to 6.74% in Q4 2023, up from 5.85% in Q4 2022, suggesting that rental income has grown, offering some buffer against rising costs.

However, the interest cover ratio (ICR) for buy-to-let properties fell to 180% from 238% the previous year, indicating tighter margins for covering interest payments from rental income.

The sector also saw a significant rise in mortgage arrears, with 13,570 mortgages in arrears of more than 2.5% of the outstanding balance, a 123.9% increase from Q4 2022.

Furthermore, mortgage possessions in the buy-to-let sector increased by 56.3% to 500 in the same period.

While fixed-rate buy-to-let mortgages saw a modest increase of 1.7% to 1.37 million, variable rate loans outstanding decreased by 12.7% to 0.62 million.