Buy to let lending flourished in the final quarter of 2024 with 52,648 new BTL loans worth £9.6 billion, UK Finance reveals.
It says that the loans marked a substantial 39.2% increase in volume and a 47.2% rise in value compared to the same period in 2023.
Interest rates for these loans averaged 5.09%, a slight drop of 0.13 basis points from the previous quarter and 0.61 basis points lower than the corresponding quarter in 2023.
This decline has influenced the average buy to let interest cover ratio, which climbed to 201 per cent in Q4 2024, up from 190 per cent at the start of the year and 21 basis points higher than 12 months earlier.
Shift in BTL mortgage preferences
The UK Finance BTL figures also highlight a shift in mortgage preferences, with 1.43 million fixed-rate buy to let mortgages in place by the end of Q4 2024, a 4.4% increase year-on-year.
Conversely, variable-rate loans decreased by 15.9%, leaving 518,000 loans outstanding.
Despite the positive lending trends, challenges remain.
The organisation reveals that the number of buy to let mortgages in arrears exceeding 2.5% of the outstanding balance fell to 12,610.
That’s down 390 from the previous quarter and 7% lower than a year ago.
However, possessions rose by 29.6% compared to Q4 2023, with 700 cases reported, unchanged from the prior quarter.
Rental yields also improved, averaging 7% across the UK in Q4 2024, up from 6.74% in the same quarter of the previous year.
No landlord exodus
Commenting on the figures, Richard Donnell, executive director at Zoopla, said: “The private rented sector stopped growing in 2016 when tax changes shifted the business model and has since been stuck at 5.5m homes, with landlords buying offset by landlords selling.
“There has been no exodus; the people selling are smaller landlords who didn’t see buy to let as a business; 40% of landlords bought their first property to live in.
“House prices have underperformed in recent years, but higher rents have helped cover rising costs and pushed yields higher.”
He added: “The catalysts for those selling have been tax changes, rising property running/repair costs, greater regulation around licensing and higher mortgage rates, which have resulted in lower profits/cashflow, with the threat of more to come.”
Multi-year consolidation phase
Mr Donnell continued: “Most buy to let landlords are aged over 60 years old and are sitting on big capital gains.
“The sector is coming to the end of a multi-year consolidation phase as small landlords leave and bigger landlords consolidate portfolios with a focus on modest leverage and cashflow.
“50% of the private rented sector is owned by 20% of landlords with the largest portfolios.
“Small one property landlords have shrunk from 80% to <50% and 40% of landlords have no mortgage/borrowing.”
He adds: “Increased borrowing in Q4 2024 is down to global uncertainty and weaker equity markets, with residential coming back into the thinking of cashflow-focused landlords.
“It didn’t really stop, but the sector needed to consolidate after more than doubling in size between 2000 and 2016 where the motive was leveraged capital growth-driven returns. ”
Resurgent buy to let market
Russell Anderson, the commercial director of mortgages at Paragon Bank, said: “The figures reveal a resurgent buy to let market throughout 2024, with strong growth in both purchase and remortgage activity.
“The data supports our view that landlords are astutely managing their lettings businesses, borrowing to invest in higher yielding properties or refinancing to proactively manage debt across portfolios and improve privately rented housing stock.
“While encouraging, this increase is against a low base in 2023 and there continues to be an acute supply demand imbalance in the private rented sector, underpinning rental inflation.”
He added: “More investment is needed into the sector to meet forecast levels of demand, so we would hope to see the momentum of last year continuing as the market recovers.”