The mortgage industry says the number of new buy-to-let mortgages approved for landlords more than halved last year, with higher interest rates blamed for the fall.

The number of new mortgage loans granted fell from 25,280 in the final months of 2022 to 12,422 during the first three months of this year.

Such a severe reduction in lending has also impacted the total number of BTL mortgages, which have shrunk for the first time since they were first introduced on 24th September 1996, initially by NatWest and Paragon.

"Many landlords have not been able to pass lenders’ affordability tests."

UK Finance, the trade organisation for mortgage lenders, has pinned the reduction on the rapid rise in interest rates following the Liz Truss/Kwasi Kwarteng budget, which means many landlords have not been able 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.

And despite rents increasing, the rising costs of being a landlord means that it’s not as profitable as it once was.

Cover ratio

In Q1 2018, the average interest cover ratio – that’s how much of a landlord’s mortgage costs are covered by their rental income – was 342 per cent. In Q1 2024 it was 191 per cent.

Also, UK Finance says the number of loans in arrears has doubled, although this still represents just 0.68% or 13,570 of the UK’s 1/98 million BTL mortgages.

“A flexible and well-run private rental sector is an essential part of the housing market,” says James Tatch (pictured), Head of Analytics at UK Finance.

“Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.

“Nevertheless, given that the new government is committed to abolishing Section 21 ‘no fault” eviction notices, it must make sure that responsible landlords have other options for 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.”

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