Newly released data from UK Finance has revealed that buy-to-let house purchase lending fell by more than 50% in 2023. The bank body’s latest report shows that the number of new loans fell to 12,422 in the first quarter of this year, down from 25,280 in the last quarter of 2022.
And for the first time, the number of outstanding BTL mortgages also fell, shrinking from 2.039 million in the first quarter of 2023 to 1.98 million in the first quarter of 2024.
The report says: “Rapidly rising interest rates played a major role in this trend, making it harder for those looking to buy a BTL property to pass lenders’ affordability tests.”
“The stamp duty surcharge on second and subsequent properties, which came into force in 2016, and the progressive removal of higher-rate income tax relief on mortgage payments for rental properties, have also made being a BTL landlord more challenging and less attractive.”
The average interest cover ratio in 2018 stood at 342%. This is how much of a landlord’s mortgage costs are covered by their rental income. This fell to 191% in the first quarter of this year.
90% of new BTL lending over the past two years was done on a fixed-rate basis, which is a much higher percentage compared to the residential sector which is largely based on variable rates.
This has led to a larger proportion of BTL mortgage holders falling into arrears, with 13,570 of the 1.98 million outstanding BTL mortgages behind in payments.
There was a total of 600 BTL possessions in the first quarter of 2024, which is higher than the 430 carried out in the same quarter last year. Whilst this is an increase of 40%, it is still below the number before the pandemic.
UK Finance Head of Analytics, James Tatch, 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 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.”
