The buy-to-let (BTL) mortgage market shrank for the primary time within the first quarter of this yr, as excessive rates of interest hit landlords’ profitability.
New information from commerce physique UK Finance confirmed that there have been 2.039 million excellent BTL mortgages within the first quarter of 2023, which fell to 1.98 million within the first quarter of 2024.
New loans for BTL home purchases have additionally fallen considerably. 25,280 new loans had been issued within the final quarter of 2022, down to only 12,422 within the first quarter of this yr.
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UK Finance attributed the decline to excessive rates of interest, which make it more durable for these trying to purchase a BTL property to move lenders’ affordability exams.
The stamp responsibility surcharge on second houses, which got here into power in 2016, and the progressive removing of BTL tax reduction, have additionally made it more durable for landlords to make a revenue regardless of rents rising.
Within the first quarter of 2018, the typical curiosity cowl ratio – how a lot of a landlord’s mortgage prices are coated by their rental revenue – was 342 per cent. Within the first quarter of 2024 it was right down to 191 per cent.
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Regardless of the market challenges, simply 0.68 per cent of all excellent BTL mortgages are in arrears, equating to 13,570 loans. The quantity has not elevated because the final quarter of final yr.
“A versatile and well-run non-public rental sector is a necessary a part of the housing market,” stated James Tatch, head of analytics at UK Finance.
“Landlords face numerous challenges, from altering laws to rising rates of interest, however have proven resilience.
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“Nevertheless, given the brand new authorities is dedicated to abolishing Part 21 ‘no fault’ eviction notices, it should make it possible for accountable landlords produce other choices for once they have legit causes to take their property again.
“With out extra sudden unfavourable shocks, robust rental demand and robust lending requirements might imply the buy-to-let sector emerges from final yr’s downturn prior to beforehand anticipated. Additionally, that additional rises in arrears are restricted.”