The buy-to-let mortgage market in the UK has experienced a decline for the first time in almost three decades. This decline can be attributed to the rising borrowing costs and stringent lending regulations, which have pushed landlords to leave the market.
According to data from UK Finance, the number of outstanding mortgages to landlords fell for the first time since 1996, dropping from 2,039,000 to 1,980,000 in the first three months of 2024. New loans for investors purchasing properties have also decreased to 12,422, down by 18% from the previous year.
The lack of new investors entering the market is a clear indication of the challenges posed by tighter regulations and higher borrowing costs. James Tatch from UK Finance highlighted the potential exacerbation of pressure on landlords as a result of Labour’s proposed rental market reform.
Mr. Tatch emphasised the need for responsible landlords to have alternative options for legitimate reasons to take their property back in response to these concerns. The National Residential Association echoed these sentiments, urging the government to ensure that its reforms do not worsen the existing supply crisis in the private rented sector.
As landlords continue to sell-up, rents across the UK have soared at a record pace. Official data revealed an 8.6% increase in rents in the year to June, with London experiencing a 9.7% rise. The competition for rental homes has doubled, with 15 people vying for every available property according to Zoopla.
The report from UK Finance highlighted the challenges faced by landlords since 2016, when a stamp duty surcharge was introduced for additional properties. Furthermore, the progressive removal of higher-rate income tax relief on mortgage interest payments for rentals has also affected landlords.
Despite these challenges, the number of mortgages for buy-to-let properties had been increasing until interest rates began to soar. Borrowing costs have reached a 16-year high, standing at 5.25%, causing many borrowers to experience a doubling or tripling of their mortgage rates.
While arrears among buy-to-let investors remain rare, there has been a 93% increase to 13,570 mortgages in January to March compared to the previous year. Lenders have also repossessed 600 properties mortgaged to landlords in the same period, representing a 39.5% increase from the previous year.
In conclusion, the decline in the buy-to-let mortgage market in the UK is a result of various factors such as rising borrowing costs, regulatory changes, and proposed rental market reforms. These challenges have led to a decrease in the number of mortgages for buy-to-let properties and new investors entering the market. It is essential for policymakers to carefully consider the potential impact of reforms on the private rented sector to ensure a well-functioning housing market for both landlords and tenants.