Buy-to-let mortgage lending rebounded sharply in the third quarter of 2025 as falling interest rates and stronger rental yields drew investors back into the market, according to new figures from UK Finance.
A total of 59,467 new buy-to-let loans were advanced between July and September, with a combined value of £10.9 billion.
That represented a 22.7% increase in loan numbers compared with the same period a year earlier, while lending by value rose by 28.2%, reflecting larger average loan sizes and renewed confidence among landlords.
The average gross rental yield across the UK rose to 7.15% in the quarter, up from 6.93% a year earlier, providing investors with greater headroom against borrowing costs and regulatory pressures.
IMPROVING RETURNS
At the same time, borrowing costs continued to ease. The average interest rate on new buy-to-let loans fell to 4.85%, down 15 basis points from the previous quarter and 37 basis points lower than in the third quarter of 2024.
The fall in rates fed through to stronger affordability metrics, with the average interest cover ratio rising to 215%, compared with 195% a year earlier.
LANDLORD CERTAINTY
Fixed-rate buy-to-let mortgages outstanding rose by 2.3% year on year to 1.44 million, while the number of variable-rate loans fell sharply, down 9.7% to 488,000, as borrowers continued to lock in rates amid expectations of gradual monetary easing.
Arrears levels improved during the quarter, suggesting that financial stress among landlords is easing despite higher taxes and regulatory costs.
At the end of September there were 10,420 buy-to-let mortgages with arrears exceeding 2.5% of the outstanding balance, down by 850 compared with the previous quarter.
However, possessions continued to rise. There were 900 buy-to-let repossessions in the third quarter, up 28.6% from 700 a year earlier, highlighting the lagged impact of higher interest rates over the past two years on a minority of heavily leveraged landlords.
AFFORDABILITY PRESSURES PERSIST
Megan Eighteen (main picture, inset), ARLA Propertymark President, says: “The rise in buy-to-let mortgage possessions over the same period a year earlier is a clear reminder that affordability pressures persist for some landlords, particularly those facing higher borrowing and operating costs.
“Today’s rise in inflation, reflecting further price increases in December, will be closely watched and could play a significant role in shaping the Bank of England’s next steps on the base rate.
“ Any sustained easing in inflation would help restore confidence and improve borrowing conditions.
“As the year progresses, it would be encouraging to see this translate into a more stable and affordable buy-to-let market.
“Continued investment in the sector remains essential to support supply and deliver much-needed new rental homes at a time when demand continues to outstrip availability.”
