Buy-to-let mortgage lending rebounded sharply in the third quarter of 2025 as falling interest rates and stronger rental yields drew investors back into the market, according to new figures from UK Finance.
A total of 59,467 new buy-to-let loans were advanced between July and September, with a combined value of £10.9 billion.
That represented a 22.7% increase in loan numbers compared with the same period a year earlier, while lending by value rose by 28.2%, reflecting larger average loan sizes and renewed confidence among landlords.
IMPROVING RETURNS
The average gross rental yield across the UK rose to 7.15% in the quarter, up from 6.93% a year earlier, providing investors with greater headroom against borrowing costs and regulatory pressures.
At the same time, borrowing costs continued to ease. The average interest rate on new buy-to-let loans fell to 4.85%, down 15 basis points from the previous quarter and 37 basis points lower than in the third quarter of 2024.
The fall in rates fed through to stronger affordability metrics, with the average interest cover ratio rising to 215%, compared with 195% a year earlier.
LANDLORD CERTAINTY
Fixed-rate buy-to-let mortgages outstanding rose by 2.3% year on year to 1.44 million, while the number of variable-rate loans fell sharply, down 9.7% to 488,000, as borrowers continued to lock in rates amid expectations of gradual monetary easing.
Arrears levels improved during the quarter, suggesting that financial stress among landlords is easing despite higher taxes and regulatory costs.
At the end of September there were 10,420 buy-to-let mortgages with arrears exceeding 2.5% of the outstanding balance, down by 850 compared with the previous quarter.
However, possessions continued to rise. There were 900 buy-to-let repossessions in the third quarter, up 28.6% from 700 a year earlier, highlighting the lagged impact of higher interest rates over the past two years on a minority of heavily leveraged landlords.
MOMENTUM WILL CONTINUE
Louisa Sedgwick, managing director of mortgages at Paragon Bank, said: “The marked uplift in the value and number of buy-to-let mortgages written compared to the previous quarter, and particularly the same period a year ago, demonstrates how landlords will invest in buy-to-let property when market conditions allow.
“The third quarter saw strong levels of remortgage activity, the highest since the final quarter of 2022, partly driven by landlords releasing equity to fund new acquisition.
“This continued the trend from the first half of the year, which saw more equity withdrawn at remortgage for portfolio expansion than any other corresponding period since 2018.
“Viewed in the context of the latest encouraging figures, and with rates forecast to continue to fall, we anticipate the momentum seen in both the purchase and remortgage markets to continue throughout 2026.”
REGULATORY CHANGE
Marylen Edwards, director of mortgages at specialist lender MT Finance, said: “While the industry prepares for the Renters’ Rights Bill changes which start to come into force from May 1st, professional landlords aren’t just surviving, they are recalibrating.
“We are seeing an increased year-on-year surge in lending value, while the average interest rate for new BTL loans has eased to 4.85%, down 37 basis points from a year ago. This softening is pushing the recalibration of portfolios as landlords lock in stability before the May 1st deadline.
“Despite the headwinds of 2025’s rate environment, it is clear the sector is still actively transacting and business continues to grow. The Q3 data reveals a definitive flight to quality, where equity-rich, professional investors are capitalising to strengthen and diversify their portfolios. New landlords coming into the market are looking at longer-term strategic capital gains and the ability to uplift and grow a portfolio.”
RISING DEMAND
Howard Levy, director of mortgage broker SPF Private Clients, added: “Many smaller portfolio landlords who held in their own name have left the market which has paved the way for the larger buy-to-let investors to provide the stock for this still rising demand.
“Looking at any specific quarter is slightly misleading as the various changes that occurred in 2024 with taxation, relief and the SDLT surcharge increase delivered in the October Budget of 2024 could have skewed the figures that quarter. It will be interesting to see if the number of loans advanced reverts back next quarter as compared to Q1 2025.
“For me the most interesting point is that the ICR coverage was 215%.”
“For me the most interesting point is that the ICR coverage was 215%. This would potentially mean that rates were booked and fixed at a low point, that LTVs are low on average or rents have risen drastically.
“In reality, it is probably a combination of all of these, but if rents do continue to rise to cover the extra costs that the government are requiring landlords to pay, then we can expect this figure to rise even further.”
AFFORDABILITY PRESSURES PERSIST
Megan Eighteen, ARLA Propertymark President, says: “The rise in buy-to-let mortgage possessions over the same period a year earlier is a clear reminder that affordability pressures persist for some landlords, particularly those facing higher borrowing and operating costs.
“Today’s rise in inflation, reflecting further price increases in December, will be closely watched and could play a significant role in shaping the Bank of England’s next steps on the base rate.
“ Any sustained easing in inflation would help restore confidence and improve borrowing conditions.
“As the year progresses, it would be encouraging to see this translate into a more stable and affordable buy-to-let market.
“Continued investment in the sector remains essential to support supply and deliver much-needed new rental homes at a time when demand continues to outstrip availability.”
