New data from UK Finance reveals that the buy-to-let market remains robust, with a notable increase in lending and stable rental yields, despite a minor uptick in mortgage possessions. The figures highlight the sector’s ongoing strength and resilience in the face of evolving market conditions.
Strong growth in buy-to-let lending
In the final quarter of 2024, the UK buy-to-let market recorded impressive growth in lending activity. According to the latest figures from UK Finance, there were 52,648 new buy-to-let loans advanced across the country, representing a substantial increase of 39.2% by number and 47.2% by value compared to the same period in 2023. The total value of these loans reached an impressive £9.6 billion.
The average gross buy-to-let rental yield for the UK during Q4 2024 was 7%, slightly up from 6.74% in the corresponding quarter of the previous year. Such consistent performance underlines the profitability and attractiveness of buy-to-let investments, particularly during times of heightened rental demand.
Interest rates and mortgage performance
The average interest rate for all new buy-to-let loans stood at 5.09% in Q4 2024, showing a 0.13 basis point decrease compared to the previous quarter, and 0.61 basis points lower than the same period in 2023. Lower interest rates have undoubtedly contributed to the appeal of the sector, enhancing affordability for landlords seeking to expand their portfolios.
Additionally, the Interest Cover Ratio (ICR) – a crucial metric indicating the ratio of rental income to mortgage payments – improved to 201% in Q4 2024, up from 190% in Q1 2024 and 21 basis points higher than the same period a year prior. This signifies improved rental profitability and better coverage of mortgage repayments, which is encouraging news for landlords.
Moreover, the number of fixed-rate buy-to-let mortgages outstanding increased to 1.43 million, marking a 4.4% rise from the previous year. In contrast, variable-rate loans fell by 15.9% to 518,000, highlighting a growing preference for fixed-rate deals among landlords aiming for financial predictability.
Mortgage arrears and possessions
Despite the positive trends, the buy-to-let sector did experience a modest rise in possessions. During Q4 2024, there were 700 buy-to-let mortgage possessions reported. While this figure remains unchanged from the previous quarter, it represents a 29.6% increase compared to the same period in 2023.
However, it’s important to note that overall mortgage arrears remain under control. At the end of Q4 2024, there were 12,610 buy-to-let mortgages in arrears greater than 2.5% of the outstanding balance, a decrease of 390 from the previous quarter and 7% lower than the same quarter in 2023.
Landlords remain well-positioned for future growth
The buy-to-let market continues to present a lucrative investment opportunity, especially as interest rates stabilise and rental demand remains strong. The consistent rental yields and high demand for rental properties provide landlords with substantial opportunities for profitability.
Steve Cox, Chief Commercial Officer at Fleet Mortgages, previously commented on the market’s resilience, stating, “Rental yield levels are showing signs of stabilisation, however they are stabilising at a higher level due to the increases seen across most regions over the course of the last 12 months. That remains a real positive for landlords.”
