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The state of buy-to-let is challenging to measure, but a new dashboard from mortgage lender trade body UK Finance shows that every lending performance metric is in the red compared with a year earlier.
Last year, the value of new lending plummeted to £6.3 billion, a staggering 55 per cent decline from the previous year. This significant drop underscores the challenging conditions in the buy-to-let market, potentially impacting investors' strategies and decisions.
Some £1.8 billion was spent on buying rental homes, while £4.3 billion went towards remortgaging.
The number of new loans, a key indicator of market activity, dropped significantly as landlords borrowed less.
The data shows that landlords bought 11,985 new homes to rent, roughly averaging 1,000 a month or 32 every day. The figure seems high, but it is 52 per cent down on 2022.
Buy-to-let purchases in England were £1.658 billion, with £438 million spent in London. Scotland and Wales accounted for £140 million.
Lending was down by half for portfolio landlords—those with four or more buy-to-let loans—and 57 per cent for non-portfolio landlords holding one to three loans.
By property type, landlords spent £181 million on new build houses (-54 per cent year-on-year), £281 million on flats (-£56 per cent) and £139 million on houses in multiple occupation (-24 per cent).
Although new lending was down 55 per cent, most went to individual landlords (£537 million), while lending to landlords with a company was down 43 per cent to £949 million.
Buy-to-let properties in England returned the lowest profitability, with an average yield of 6.57 per cent at the start of this year—a 0.8 per cent annual increase. London investors had a yield of 5.57 per cent and a 0.8 per cent rise year-on-year.
Landlords in Scotland saw their yields rise by 0.9 per cent, taking their return to 8.2 per cent.
In Wales, yields increased by 0.9 per cent to 7.3 per cent.
The good news for borrowers was a drop in average interest rental cover (ICR) over the year. The ICR is the percentage of monthly income a lender considers needed to pay the mortgage based on a ‘stressed’ calculation assuming future interest rate rises.
In England, the figure has fallen by 59 per cent in a year to 177 per cent of the monthly rental payment. ICR is 48 per cent down in London to 163 per cent, down 68 per cent to 187 per cent in Wales and down 48 per cent in Scotland to 201 per cent.
Average buy-to-let mortgage interest rates are 5.7 per cent - up 2.09 per cent from 12 months ago. Some 1.388 million are fixed rate load, an increase of 1.7 per cent from a year ago, while the number of variable rate loans has dropped 12.7 per cent to 615,000.
Lenders say 13,570 mortgages have arrears of more than 2.5 per cent of borrowing, which is a massive 123 per cent increase over last year’s comparative figures.
Repossessions are up 56 per cent to 500 homes.
“Rent increases have not translated into higher profits for landlords,” said a UK Finance spokesman.
“Although arrears and repossessions show significant increases, it is important to put this into context. Just 0.68 per cent of buy-to-let mortgages are in arrears, which is lower than the residential sector.”