UK Finance reports increase in new loans and stable yields as interest rates ease
The UK’s buy-to-let mortgage market saw a significant rise in activity during the first quarter of 2025, according to the latest data from UK Finance.
A total of 58,347 new buy-to-let loans were issued between January and March, with a combined value of £10.5 billion. This marks an increase of 38.6% in the number of loans and a 46.8% rise in value compared to the same period last year.
The average gross rental yield for buy-to-let properties reached 6.94% in Q1 2025, slightly higher than the 6.88% recorded in the first quarter of 2024. Meanwhile, the average interest rate for new buy-to-let mortgages fell to 4.99%, down by 10 basis points from the previous quarter and 41 basis points lower than a year earlier.
Reflecting these changes, the average interest cover ratio (ICR) for buy-to-let loans stood at 202% in the first quarter, up from 190% in Q1 2024 and unchanged from the previous quarter.
The number of outstanding fixed rate buy-to-let mortgages increased to 1.44 million, representing a 4.99% rise year-on-year. In contrast, variable-rate loans declined by 15.8% to 500,000.
UK Finance’s Buy-to-let Mortgage Market Update also revealed that at the end of March, 11,830 buy-to-let mortgages were in arrears of more than 2.5% of the outstanding balance, a decrease of 780 cases from the previous quarter. There were 810 cases of buy-to-let mortgage possessions in Q1 2025, up 28.6% compared to the same period last year.
“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,” said 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. 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.”
According to Richard Donnell, executive director at Zoopla, 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 said. “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 prices inflation.”
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