Arrears rise by 124%
The value of new buy-to-let lending in the UK plummeted to £6.3 billion in the fourth quarter of 2023 – a steep decline of 55.4% compared to the same period in 2022, according to UK Finance.
The trade body released its inaugural quarterly buy-to-let market update, presenting a comprehensive analysis of the latest trends in the UK’s buy-to-let mortgage sector. The Q4 2023 report reveals significant shifts in the market, including a marked decrease in new lending volumes, adjustments in rental yields, and changes in mortgage interest rates.
Despite the downturn in lending, the average gross buy-to-let rental yield saw an improvement, increasing to 6.74% from 5.85% in the previous year’s final quarter.
Interest rates on new buy-to-let loans had a notable rise, climbing to 5.7% in Q4 2023, up from 3.67% a year earlier. This surge in interest rates contributed to a drop in the average buy-to-let interest cover ratio (ICR), which fell to 180% from 238% over the same period.
The UK Finance report also highlights a mixed picture in the buy-to-let mortgage market, with the number of fixed rate mortgages outstanding slightly increasing by 1.7% year-on-year to 1.37 million. In contrast, variable rate loans saw a significant decrease, dropping by 12.7% to 0.62 million.
A concerning trend noted in the report is the increase in buy-to-let mortgages in arrears, with 13,570 cases exceeding 2.5% of the outstanding balance at the end of Q4 2023, marking a 123.9% increase compared to the same quarter the previous year. Furthermore, buy-to-let mortgage possessions in Q4 2023 rose by 56.3% year-on-year, totalling 500 cases.
“It’s a challenging time for the private rental sector and, within this, the buy-to-let mortgage market,” said Ermir Selmani, data and research analyst at UK Finance. “The interplay between economic factors and regulatory change continues to impact on market activity, and it’s timely that we’re able to release our first quarterly BTL update to draw out some key trends.
“When considering housing affordability, it is often forgotten that landlords are also impacted by cost-of-living pressures, and most acutely from higher interest rates. For BTL landlords, rent increases have not translated into higher profit margins.
“Mortgage lenders remain prepared to support landlords struggling with mortgage payments – offering forbearance tailored to the individual landlord’s circumstances. It is therefore vital that landlords reach out to their lender as soon as possible if concerned about their payments.”
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