Buy-to-let lending surged in the first quarter of 2025 as falling interest rates and rising yields prompted renewed investor appetite according to the latest figures from UK Finance.
A total of 58,347 new buy-to-let loans were advanced between January and March, up 38.6% on the same period last year.
The value of new lending rose even more sharply – up 46.8% year-on-year to £10.5 billion – as investors returned to the market after two years of volatility.
Average rental yields across the UK stood at 6.94% in Q1, slightly up from 6.88% a year earlier, while borrowing costs eased.
GOING LOWER
The average interest rate on new buy-to-let loans fell to 4.99%, 41 basis points lower than in Q1 2024 and 10 basis points below the previous quarter.
This easing in rates has lifted the average buy-to-let interest cover ratio (ICR) – a key measure of rental income relative to interest payments – to 202%, up from 190% in Q1 2024 and unchanged from Q4 2024.
The improving market environment appears to have encouraged more landlords to lock in fixed-rate deals.
There were 1.44 million fixed-rate buy-to-let mortgages outstanding at the end of March, 4.99% higher than a year earlier. Meanwhile, the number of variable-rate loans fell 15.8% to 500,000.
MODEST IMPROVEMENT
Arrears in the sector showed a modest improvement. The number of buy-to-let mortgages in arrears of more than 2.5% of the outstanding balance fell to 11,830 — down by 780 compared with the previous quarter.
However, mortgage possessions in the buy-to-let sector continued to rise. There were 810 repossessions in Q1 2025, up 28.6% on the same quarter a year earlier, suggesting that some landlords are still grappling with legacy financial pressures despite the overall recovery in lending conditions.
BUY-TO-LET REVIVAL
Nathan Emerson, Chief Executive at Propertymark, says: “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.
“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.
“The Bank of England continues to work hard managing inflation levels, and the direction of travel here will prove key within all base rate decisions moving forwards.”
