BTL market lending grows amid recovery signs

The UK’s buy to let sector saw strong growth in the first three months of 2025, with lending rising by 38.6% compared to last year.

The figure comes from UK Finance which also reveals that 58,347 new BTL mortgages were finalised.

The value of these loans in the first quarter soared to £10.5 billion, a striking 46.8% increase from the £7.2 billion recorded last year.

This rise points to a strong rebound in the buy to let market, which has faced higher interest rates and stricter affordability rules in recent years.

Higher yields make BTL attractive

James Tatch, the head of analytics at UK Finance, said: “The rise in buy to let lending at the start of this year reflects broader dynamics across the mortgage market.

“Much of the growth can be attributed to the end of temporary Stamp Duty relief in April, which incentivised buyers to act before thresholds changed.”

He added: “We’re also seeing the effects of lower interest rates and improved rental yields, which have made buy to let borrowing more attractive.”

Interest rates are lower

UK Finance also says that interest rates on new BTL loans also eased, averaging 4.99%, down from 5.40% a year earlier.

The average interest cover ratio climbed to 202%, up from 190% in Q1 2024, reflecting healthier rental income relative to mortgage expenses.

The organisation notes: “The improved interest cover ratio indicates stronger financial resilience for landlords.”

The data also showed a shift in mortgage types, with fixed-rate BTL loans rising by 5% to 1.44 million.

Variable-rate mortgages dropped sharply by 15.8% to around 500,000.

BTL loan arrears fall

Meanwhile, arrears on buy to let loans exceeding 2.5% fell to 11,830 cases, a reduction of 780 from the previous quarter.

However, possessions grew by 28.6% to 810 cases, which UK Finance attributes to the courts clearing the backlog of cases.

Despite the strong start to 2025, UK Finance adopted a cautious tone for the year ahead, forecasting a 7% decline in purchase-based BTL.

It will fall from £10 billion in 2024 to approximately £9 billion by year-end.

This expected dip stems from regulatory shifts, rising landlord operating costs and the gradual phasing out of some tax benefits.

Refinancing activity, however, remains resilient, buoyed by falling interest rates and the need for landlords to secure new deals as fixed-rate terms expire.

Property sector reaction

Louisa Sedgwick, the managing director of mortgages at Paragon Bank, said: “Buy to let lending in the first quarter of the year was the highest seen since the mini-Budget and in line with pre-pandemic levels, primarily driven by a surge in new purchase activity ahead of the changes to Stamp Duty thresholds at the end of the quarter.

“This shows that with the right market conditions landlords will invest.

“Demand currently exceeds supply and is forecast to continue, driven by factors such as population increases and household formation changes.”

Richard Donnell, executive director at Zoopla, said: “Activity from buy to let landlords is starting to increase as mortgage rates stabilise and yields from residential property move higher as rents rise faster than house prices.

“The big landlord sell off is coming to an end after a decade of tax changes and higher borrowing costs that saw many landlords reconsider their strategy and property holdings.

“As base rates start to fall, we are likely to see a continued increase in demand from landlords with a greater focus on strength and quality of cashflow rather than house prices inflation.”

Nathan Emerson, the chief executive at Propertymark, said: “It is positive to witness what we hope is a wider scale revival in buy to let lending across Q1 of 2025.

“This trend has likely been encouraged by interest rates on buy to let loans being lower than they were in the same quarter for 2024.

“These numbers demonstrate that more competitive interest rates are helping to attract more people to the buy-to-let market.”

He added: “However, with mortgage possessions up this quarter from the same quarter a year previously, these figures also highlight there are still significant affordability issues for those engaging in buy to let borrowing in recent years.”

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