The most recent data released by UK Finance indicates a substantial decline in the buy-to-let (BTL) mortgage market, with lending for BTL house purchases declining by more than half in the past year. The number of new mortgage deals granted for this purpose has seen a drastic decrease, dropping from 25,280 in the fourth quarter of 2022 to 12,422 in the first quarter of 2023. This decline is attributed to various challenges that landlords are currently facing.
One of the major factors contributing to this downward trend is the rapidly rising interest rates, which have made it increasingly difficult for aspiring property owners to pass lenders’ affordability tests. Additionally, the stamp duty surcharge on second and subsequent properties, alongside the gradual removal of higher-rate income tax relief on mortgage payments for rental properties, have further exacerbated the challenges faced by landlords. Consequently, the role of a landlord has become less appealing and more demanding.
The report also highlights the contraction of the BTL mortgage market, with the number of outstanding BTL mortgages decreasing from 2.04 million in the first quarter of 2023 to 1.98 million in the first quarter of 2024. Landlords with just one property represent one third of the BTL market, with 10% of BTL mortgages being held by landlords who have established themselves as companies.
Despite the challenges, UK Finance noted that the number of BTL mortgages in arrears has remained relatively stable over the past year, representing just 0.68% of all BTL mortgages. Mortgage lenders continue to offer support to landlords who may be struggling with their mortgage payments, providing tailored assistance to address their financial concerns.
The report also highlighted the impact of rising costs on landlords’ profits, with the average interest cover ratio dropping from 342% in the first quarter of 2018 to 191% in the first quarter of 2024. It is interesting to note that 90% of new BTL lending over the past two years has been done on a fixed-rate basis. However, a larger proportion of BTL mortgages are on variable rates compared to the residential sector, which has led to a higher proportion of BTL mortgage holders falling into arrears.
James Tatch, head of analytics at UK Finance, expressed optimism about the future of the buy-to-let sector, stating that strong rental demand and lending standards could lead to a quicker recovery than previously anticipated. Furthermore, he emphasized that lenders are committed to providing support to those facing financial difficulties and encouraged landlords to reach out for assistance as soon as possible.
In conclusion, the challenges faced by landlords in the buy-to-let mortgage market are evident, and it is crucial for lenders and landlords to work together to overcome these obstacles. The ongoing support provided by mortgage lenders, coupled with the potential for a resurgence in the buy-to-let sector, offers hope for landlords amidst a challenging landscape.