The buy-to-let sector showed signs of stabilising in the second quarter of 2025, as lending levels remained broadly steady and yields improved despite continued economic uncertainty.
According to UK Finance’s latest figures, there were 49,590 new buy-to-let loans advanced across the UK between April and June, worth £8.8 billion. That represented a slight annual fall of 2.6% by number and 0.2% by value.
The average gross rental yield rose to 7.26%, up from 6.9% in the same period last year, while the average interest rate edged up to 5.0%.
Falling rates have also strengthened landlords’ balance sheets, with the average interest cover ratio improving to 210% – up from 192% a year earlier.
Meanwhile, the number of fixed-rate buy-to-let mortgages increased by 5.5% year on year to 1.47 million, as more landlords sought security against future rate movements.
ARREARS & POSSESSIONS
Arrears also fell, with 11,270 buy-to-let mortgages more than 2.5% in arrears at the end of the quarter – down 560 on the previous period. However, possessions rose to 790, up 11.3% year on year.
Megan Eighteen, president of ARLA Propertymark, said the figures reflected “mixed results” for landlords amid ongoing economic headwinds. She said: “Inflation remains stubbornly high, interest rates are still elevated compared to pre-pandemic levels, and Stamp Duty thresholds are less favourable than in the same period last year.
“Combined with the anticipation surrounding the upcoming Autumn Budget, many investors are choosing to hold off on decisions until there is greater clarity.”
Eighteen added that some signs of recovery were evident. “Some areas of the country are seeing improved rental yields compared to this time last year, and the number of buy-to-let mortgages in arrears has declined since the previous quarter. We hope to see economic conditions stabilise in the near future to support a stronger and more confident buy-to-let sector.”
ENCOURAGING ENVIRONMENT
Mark Harris, chief executive of SPF Private Clients, said the market was proving more resilient than many expected. “Despite reports of an exodus of landlords amid concerns about the imminent Renters’ Reform Bill, the buy-to-let market does not appear to be faring too badly, as mortgage rates continue to fall and rents increase.”
He noted that lenders were competing actively for business. “The lending environment is certainly encouraging, with lenders having plenty of money to lend and are keen to do so. Not only have buy-to-let mortgage rates reduced throughout the year, but lenders have also been improving their criteria,” he said.
Harris added that the rise in limited company borrowing was reshaping the market. “Those landlords borrowing via a limited company are also benefiting from a wider choice of products and falling mortgage rates, although these are still pegged higher than for landlords buying in their own name. However, given the potential savings of incorporation – particularly for those landlords with large portfolios who can offset costs and mortgage interest against the rents – these higher rates are typically more than offset.”
He predicted a continued shift towards a more professional landlord base. “The buy-to-let market is undoubtedly heading towards professional landlords predominantly running the private rented sector. We are seeing many clients seek advice on whether to incorporate. It’s about planning ahead, seeking advice and taking a longer-term view.”
NEED TO ADAPT
Heather Hancock, head of credit and operations at Black & White Bridging, said that while opportunities remained, landlords were having to adapt to a more complex environment.
“Prospective landlords can’t just walk into an estate agent and buy a rental property in the same way they could previously. The field has changed. There’s still money to be made in the rental market, but it won’t fall into your lap anymore. Landlords are having to work harder.”
She added that the exit of smaller landlords was being offset by a rise in limited company activity. “A drop in the value of new buy-to-let lending and the number of loans highlights that we are seeing landlords exiting the market. But we believe these are accidental and amateur landlords, leaving the industry with a more professional cohort.”
Hancock said this shift was driving demand for more complex funding routes. “Growth in the value of new buy-to-let lending to SMEs, up 11.7% year on year, highlights how many landlords have set up limited companies in recent years due to the tax advantages.
“These landlords are more likely to look to refurbishment or conversion projects to broaden their portfolios, which is driving demand for specialist finance ahead of buy-to-let loans.”
She added: “We aren’t saying there aren’t good yields to be had, but to make waves in the current climate landlords need to take advantage of lending options, like bridging, that they wouldn’t have needed previously.”
The data suggest that while the era of the casual landlord may be fading, the buy-to-let market remains a core part of the UK’s housing landscape – increasingly dominated by professional investors with a long-term outlook.
