"Activity from buy-to-let landlords is starting to increase as mortgage rates stabilise and yields from residential property move higher as rents rise faster than house prices"
- Richard Donnell - Zoopla
Buy-to-let lending in the UK rose sharply in the first quarter of 2025, according to new data from UK Finance, with a marked increase in both volumes and value compared to the same period last year.
A total of 58,347 new buy-to-let loans were completed in Q1, up 38.6% year-on-year. The total value of lending climbed to £10.5 bn, representing a 46.8% increase compared with the £7.2 bn advanced in Q1 2024. The data suggests a continued recovery in the buy-to-let market, following a challenging period marked by rising interest rates and tighter affordability conditions.
The average interest rate on new buy-to-let loans stood at 4.99% during the quarter, down from 5.40% a year earlier. UK Finance reported that the average interest cover ratio improved to 202%, compared with 190% in Q1 2024, indicating stronger rental income relative to mortgage costs.
Outstanding fixed-rate buy-to-let mortgages reached 1.44 million, a 5% year-on-year increase. In contrast, the number of variable-rate loans declined by 15.8%, falling to approximately 500,000. Arrears on buy-to-let loans over 2.5% dropped to 11,830 cases, down by 780 from the previous quarter, while the number of possessions rose to 810, an increase of 28.6% year-on-year.
UK Finance attributed the rise in possessions to the resumption of court activity and the clearing of backlogs, rather than a broader increase in landlord financial distress.
While Q1 lending activity showed substantial growth, the organisation maintained a cautious outlook for the rest of the year. Its 2025 forecast predicts a 7% decline in purchase-based buy-to-let lending, with lending volumes expected to fall from approximately £10 bn in 2024 to around £9 bn by the end of this year.
This anticipated contraction reflects the impact of regulatory changes, increased operating costs for landlords, and the phased withdrawal of certain tax reliefs.
Despite the expected decline in purchase lending, demand for refinancing remains steady, supported by falling rates and continued pressure on landlords to remortgage before fixed deals expire.
The latest figures come as policymakers and market participants continue to monitor the health of the private rented sector, which has seen ongoing shifts in landlord behaviour. Recent survey data points to a reduction in rental supply as some landlords exit the market, responding to regulatory and tax pressures.
“Buy-to-let lending in the first quarter of the year was the highest seen since the mini-budget and in line with pre-pandemic levels, primarily driven by a surge in new purchase activity ahead of the changes to Stamp Duty thresholds at the end of the quarter," comments Louisa Sedgwick, Managing Director of Mortgages at Paragon Bank. “This shows that with the right market conditions, landlords will invest. Demand currently exceeds supply and is forecast to continue, driven by factors such as population increases and household formation changes."
She added, "To meet this demand and help to moderate rent inflation, as well as to provide a home to millions of tenants across all walks of life, it is essential to facilitate an attractive investment environment with balanced regulation and economic stability.”
Richard Donnell, Executive Director at Zoopla, said, "Activity from buy-to-let landlords is starting to increase as mortgage rates stabilise and yields from residential property move higher as rents rise faster than house prices. The big landlord sell-off is coming to an end after a decade of tax changes and higher borrowing costs that saw many landlords reconsider their strategy and property holdings,"
He concluded, "As base rates start to fall, we are likely to see a continued increase in demand from landlords with a greater focus on strength and quality of cashflow rather than house price inflation."
Nathan Emerson, CEO at Propertymark, said, “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 that 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.”
