The number of outstanding buy-to-let mortgages also declined for the first time, dropping from 2.039 million in the first quarter of last year to 1.98 million in the first quarter of this year
BTL house purchase lending dropped by more than half in 2023, with the number of new loans dropping from 25,280 in the last quarter of 2022 to just 12,422 in the first quarter of this year, according to data from UK Finance.
The bank body adds that the number of outstanding buy-to-let mortgages also declined for the first time, dropping from 2.039 million in the first quarter of last year to 1.98 million in the first quarter of this year.
It says: Rapidly increasing 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.
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, it added.
The body points out that despite rents rising, the increasing costs of being a landlord means that it is not as profitable as it once was.
In the first quarter of 2018, the average interest cover ratio – which is how much of a landlord’s mortgage costs are covered by their rental income – was 342%. In the first quarter of this year, it was 191%.
The body adds that most BTL borrowers continue to choose fixed-rate mortgages, with 90% of new lending during the last two years being done on a fixed-rate basis.
However, when compared with the residential sector, a larger proportion of buy-to-let mortgages are on variable rates.
This has contributed to proportionally more BTL mortgage holders falling into arrears.
At the end of the first quarter of this year, 13,570 of the 1.98 million outstanding buy-to-let mortgages were in arrears.
The association says: While this is a 93% rise on the same quarter a year ago, it is still just 0.68% of all buy-to-let mortgages and the number has not risen since the last quarter of last year.
The proportion of BTL mortgages in arrears has increased more than among residential mortgage holders because most BTL mortgages are interest-only. As such, they are more impacted by higher interest rates.
The study by the body shows there were 600 BTL possessions during the first quarter of this year, compared with 430 in the same quarter a year ago. This is a 40% rise, but still below the number before the pandemic.
UK Finance head of analytics James Tatch says: A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to increasing interest rates, but have shown resilience.
However, given the new government is committed to abolishing Section 21 ‘no fault’ eviction notices, it must make sure that responsible landlords have other options when they have legitimate reasons to take their property back, he adds.
