Buy-to-let mortgage lending surged in the first quarter of 2025, reaching levels not seen since the autumn of 2022, as landlords returned to the market amid easing borrowing costs and rising rental yields.

Figures published by UK Finance show that 58,347 new buy-to-let loans were advanced in Q1 2025, with a total value of £10.5 billion. This marks an increase of 38.6% by number and 46.8% by value compared with the same period in 2024.

The rebound comes as interest rates for new buy-to-let loans edged down to an average of 4.99% during the quarter, 41 basis points lower than in Q1 last year.

The data paints a picture of cautious optimism in the private rental sector, with average gross yields rising slightly to 6.94% and the interest cover ratio — a key affordability metric — improving to 202%, up from 190% a year earlier.

Fixed-rate mortgages continue to dominate the landscape, with 1.44 million outstanding in Q1, a 4.99% annual rise. Meanwhile, the number of variable rate loans dropped sharply by 15.8% to 500,000.

ARREARS

Despite this renewed momentum, arrears and possessions indicate continued stress for a minority of landlords. The number of buy-to-let mortgages in arrears of more than 2.5% fell to 11,830, down 780 on the previous quarter. However, 810 possessions were recorded, up 28.6% on the same period last year.

Nathan Emerson, chief executive at Propertymark, said the figures signalled what “we hope is a wider scale revival in buy-to-let lending”, attributing the uptick to more competitive interest rates. But he warned that affordability remains a concern, with some borrowers still facing financial strain.

“The Bank of England continues to work hard managing inflation levels, and the direction of travel here will prove key within all base rate decisions moving forwards,” he said.

Echoing the sense of cautious recovery, Richard Donnell, executive director at Zoopla, said landlords were re-entering the market as mortgage rates stabilised and rental yields improved.

“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 begin to ease, Donnell expects to see “a continued increase in demand from landlords with a greater focus on strength and quality of cashflow rather than house prices inflation”.

The strongest rise in lending activity appears to have been driven by new purchases, as landlords moved quickly ahead of the end-of-quarter changes to stamp duty thresholds.

According to Louisa Sedgwick, managing director of mortgages at Paragon Bank, this lifted activity to levels not seen since before the pandemic. “This shows that with the right market conditions landlords will invest,” she said.

She also highlighted that structural trends — such as population growth and shifts in household formation — continue to fuel demand for rental housing.

“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,” Sedgwick added, “it is essential to facilitate an attractive investment environment with balanced regulation and economic stability.”