The UK buy-to-let mortgage market is experiencing a significant downturn, as the number of new mortgages granted by lenders has plummeted by more than half in just over a year. The figures reveal a sharp decline from 25,280 new buy-to-let mortgages in the last quarter of 2022 to 12,422 in the first quarter of 2024. This marks the first contraction of the sector in nearly three decades.
The number of outstanding buy-to-let mortgages also fell, decreasing from 2.039 million in the initial months of last year to 1.98 million in the same period this year. Among these, 13,570 mortgages were in arrears by the end of the first quarter of this year, representing a staggering 93% increase compared to the same timeframe a year earlier.
UK Finance attributes this trend to several factors that have made being a buy-to-let landlord increasingly challenging. The organization highlighted the impact of rapidly rising interest rates, which have made it more difficult for potential buyers to meet lenders' affordability criteria.
"Rapidly rising interest rates played a major role in this trend, making it harder for those looking to buy a buy-to-let property to pass lenders’ affordability tests," UK Finance stated.
Landlords with only one rental property are feeling the effects of these higher interest rates more acutely. Nevertheless, the proportion of such landlords who are in arrears has remained unchanged since the end of 2023, still constituting just 0.68% of all buy-to-let mortgages.
The buy-to-let sector originally surged due to legal changes related to tenancies in the 1990s, alongside a tax regime favorable to landlords. This led to the introduction of the first buy-to-let products in 1996, which spurred the sector's expansion. The market enjoyed substantial growth fueled by strong house price increases and rising demand for rental properties. However, a series of mortgage rate hikes starting in 2022 have significantly slowed down the sector's momentum.
UK Finance further commented that being a landlord has become "more challenging and less attractive … Despite rents increasing, the rising costs of being a landlord means that it’s not as profitable as it once was."