The Q4 2023 report reveals significant shifts in the market, including a marked drop in new lending volumes, adjustments in rental yields, and changes in mortgage interest rates
The value of new BTL lending in the UK slumped to £6.3 billion in the fourth quarter of 2023 – a sharp decline of 55.4% compared to the same period in 2022, according to UK Finance.
The trade body released its inaugural quarterly BTL market update, presenting a comprehensive analysis of the latest trends in the UK’s BTL mortgage sector. The Q4 2023 report reveals considerable shifts in the market, including a marked drop in new lending volumes, adjustments in rental yields, and changes in mortgage interest rates.
Despite the decline in lending, the average gross BTL rental yield saw an improvement, rising to 6.74% from 5.85% in the previous year’s final quarter.
Interest rates on new BTL loans had a notable increase, jumping to 5.7% in Q4 2023, up from 3.67% a year ago. This jump in interest rates contributed to a decline in the average BTL interest cover ratio (ICR), which dropped to 180% from 238% over the same period.
The UK Finance report also highlights a mixed picture in the BTL mortgage market, with the number of fixed rate mortgages outstanding rising by 1.7% YoY to 1.37 million. In contrast, variable rate loans saw a significant decline, dropping by 12.7% to 0.62 million.
A concerning trend noted in the report is the rise in BTL mortgages in arrears, with 13,570 cases exceeding 2.5% of the outstanding balance at the end of Q4 2023, marking a 123.9% rise compared to the same quarter the previous year. Moreover, BTL mortgage possessions in Q4 2023 increased by 56.3% YoY, totalling 500 cases.
It is a challenging time for the private rental sector and, within this, the BTL mortgage market, said Ermir Selmani, data and research analyst at UK Finance. The interplay between economic factors and regulatory change continues to impact market activity, and it is timely that we are able to release our first quarterly BTL update to draw out some key trends.
Selmani added: When considering housing affordability, it is often forgotten that landlords are also affected by cost-of-living pressures, and most acutely from higher interest rates. For BTL landlords, rent increases have not translated into higher profit margins.
