UK BTL market shrinks for first time
The buy-to-let (BTL) mortgage market shrank for the first time in the first quarter of this year, as high interest rates hit landlords’ profitability.
New data from trade body UK Finance showed that there were 2.039 million outstanding BTL mortgages in the first quarter of 2023, which fell to 1.98 million in the first quarter of 2024.
New loans for BTL house purchases have also fallen significantly. 25,280 new loans were issued in the last quarter of 2022, down to just 12,422 in the first quarter of this year.
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UK Finance attributed the decline to high interest rates, which make it harder for those looking to buy a BTL property to pass lenders’ affordability tests.
The stamp duty surcharge on second homes, which came into force in 2016, and the progressive removal of BTL tax relief, have also made it harder for landlords to make a profit despite rents increasing.
In the first quarter of 2018, the average interest cover ratio – how much of a landlord’s mortgage costs are covered by their rental income – was 342 per cent. In the first quarter of 2024 it was down to 191 per cent.
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Despite the market challenges, just 0.68 per cent of all outstanding BTL mortgages are in arrears, equating to 13,570 loans. The number has not increased since the last quarter of last year.
“A flexible and well-run private rental sector is an essential part of the housing market,” said James Tatch, head of analytics at UK Finance.
“Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.
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“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.
“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.”
