The number of outstanding buy-to-let mortgages contracted for the first time, dropping from 2.04 million in Q1 2023 to 1.98 million this year, data from a trade body showed.
According to UK Finance’s buy-to-let mortgage market update, this was only a slight reduction. The organisation said being a buy-to-let landlord was “more challenging and less attractive” because of the stamp duty surcharge on additional properties and the removal of tax relief on mortgage payments for rental properties.
Its analysis found that the value of gross buy-to-let lending completed in Q1 this year came to £7bn, 17.3% lower than the year before. Within this, £1.9bn was deployed for purchases, a 18.6% reduction on the same period in 2023.
Some £4.7bn of buy-to-let lending was for remortgage, 16.7% down annually.
In the first quarter of 2024, there was a 16.7% decline in the number of new buy-to-let loans issued, falling to 41,149. Within this, there was a halving in the number of loans issues for buy-to-let house purchase, which declined from 25,280 in Q4 2022 to 12,422 in Q1.
UK Finance attributed the fall in purchase activity to “rapidly rising interest rates”, which it said made it harder for borrowers to pass affordability tests.
The value of buy-to-let mortgages provided to non-portfolio landlords reached £4.8bn in Q1, while lending to portfolio landlords was at a value of £2.1bn. These were down by 16.9% and 18.2% respectively.
Lending to individual landlords dropped by more than a fifth, 20.9%, to £5.82bn year-on-year during Q1. There was a 7.4% increase in lending to limited company landlords, which rose to £1.14bn. Individual landlords now make up a third of the buy-to-let market, and a tenth of mortgages are held by landlords who have set up as companies, the data showed.
Buy-to-let rates still elevated
The number of outstanding buy-to-let mortgages on fixed rates was 1.38 million in Q1, a 3% rise annually. At the same time, the number of buy-to-let borrowers on variable rate loans fell by 14.4% to 596,000. UK Finance said 90% of new buy-to-let lending was now being done on a fixed rate basis.
UK Finance’s data showed the average interest rate across new loans was 5.4% in Q1. This was down by 0.3% when compared to the previous quarter, but 0.76% higher than the same period in 2023.
Reflecting the higher interest rates, the average interest cover ratio (ICR) during the period was 191%, up from 180% in Q4 2023. However, this was down on the average ICR of 206% last year.
The typical gross buy-to-let rental yield was 6.88%, slightly higher than the average of 6.23% the year before.
Rise in arrears and possessions
By the end of Q1, there were 13,570 buy-to-let mortgages in arrears greater than 2.5% of the overall balance.
This was flat on Q4 2023, but 93% higher than Q1 2023. UK Finance said although more landlords were on fixed rates, a higher share were on variable rates than in the residential market which was contributing to more buy-to-let borrowers falling into arrears. It also put this down to more buy-to-let borrowers being on interest-only deals.
This increase in arrear rates coincided with a rise in buy-to-let mortgage possessions, which rose 39.5% annually in Q1. This was down on pre-pandemic levels and mostly due to the possession cases progressing through the courts.
Resilience continues
James Tatch, head of analytics at UK Finance, said: “A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.
“However, given the new government is committed to abolishing Section 21 ‘no fault’ eviction notices, it must make sure that responsible landlords have other options for when they have legitimate reasons to take their property back.”
He added: “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.”
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS