Tighter affordability rules and falling valuations are reshaping how brokers place buy-to-let business in the UK
Buy-to-let lending is undergoing a quiet transformation as brokers navigate a tougher, less predictable environment for landlords trying to remortgage or expand. Affordability stress tests, tightened post-Covid and rarely adjusted since, are making it harder to raise capital, particularly in areas where rents aren’t rising fast enough to meet lenders’ thresholds.
“Especially in Scotland, the remortgage market was basically dead for a while,” said Rebecca Wilkins, director at Cutting Edge Mortgages. “Even now, with some new lenders coming in, the impact of stress tests means many landlords just can’t move forward. If there's a down valuation on the rental income, you're often dead in the water.”
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Lower rental yields, fewer options
One of the most immediate challenges brokers face is loan size reduction due to rent-based stress testing. “Clients still come in with clear objectives,” Wilkins said, “but in many cases, the rental yield just doesn’t stretch far enough under current stress rules to support the loan size they want.”
Some lenders are responding – Wilkins points to Redwood and Hinckley & Rugby easing affordability on select products – but the market remains tight. “Loan amounts are getting squeezed, and brokers are left with fewer ways to make deals work,” she said. “Sometimes, there’s genuinely nowhere to go.”
Changing deal structures and geography
The squeeze has led to a marked shift in broker strategies. For many clients, incorporating limited company structures is becoming a default consideration, not just for tax purposes but to navigate stricter stress testing frameworks.
“There’s been a clear uptick in landlords exploring corporate structures,” Wilkins said. “Across most lenders, the stress testing is more forgiving for limited companies, and brokers are leaning into that.”
In parallel, more landlords are looking north. “Clients from London or the South East are now asking about Yorkshire and Humberside,” she said. “Yields are stronger, and we’ve seen up to 8% rent increases annually in some areas. There’s demand and not enough stock – that’s the kind of market landlords need right now.”
According to a 2024 Hamptons report, landlords in the North East could achieve an LTV of 73% under stress test conditions, compared to just 44% in London, a gap that continues to drive geographic investment shifts.
Innovation slow but visible
Despite the pressure, Wilkins sees signs of adjustment from lenders, particularly in product design and incentive structures. “TMW and TML have both cut rates and increased fee incentives,” she said. “Lenders are experimenting more, and that’s usually a sign that they’re trying to re-engage parts of the market.”
She expects more movement as lenders recalibrate to the post-Covid lending landscape. “In previous downturns or political shocks, lenders initially pull back but eventually innovate. We’re starting to see that cycle play out again.”
Policy and market misalignment
Wilkins is sceptical that current affordability rules reflect market realities. “Stress tests might have made sense when rates were rising fast, but they’re now holding back investment in rental housing,” she said. “You’ve got private landlords plugging a housing gap, but the rules aren’t giving them room to operate.”
While lenders may adjust at the margins, Wilkins warns that without broader regulatory or policy alignment, the system risks excluding viable borrowers.
“I feel like it’s really repressed it - it’s holding it back - and they need to start having a look at it,” she said. “It is doing a job for the community, providing housing. You need to start giving landlords somewhere to go.”
Until that happens, brokers will continue working within narrow constraints, and landlords will keep looking for the gaps.
