Perception and reality are often mistaken for one another. That is especially true in the buy-to-let market, where sentiment frequently diverges from what is actually happening on the ground.
The narrative surrounding the sector is that it continues to struggle and that landlords are leaving in their droves. But the numbers tell a more encouraging story.
There is no doubt that the past two years have been a rollercoaster. From the highs of 2022, the market retrenched in 2023 and has been recovering since. That experience has understandably left many brokers, landlords and even lenders bruised.
SOLID DATA
But if we strip away the noise and look purely at the data, the market is faring relatively well, considering the headwinds it’s facing. And when people look back on 2025, the consensus may well be that it was a solid, stabilising year that quietly outperformed expectations.
At the end of last year, the major trade bodies forecast between £32bn (UK Finance) and £38bn (Intermediary Mortgage Lenders Association) of buy-to-let lending for 2025. After a slightly disappointing second quarter, it briefly looked like the market might be drifting towards the lower end of those projections.
However, a stronger-than-expected Q3 altered the picture significantly. Lending for the first nine months of the year reached £30.2bn – up 23.4% on the same period in 2024.
Barring a sharp and unlikely slowdown in Q4, £38bn should be well within reach, with the potential even to edge above it.
That growth has been driven mainly by lower borrowing costs. Average buy-to-let rates are around 50 basis points lower than a year ago. That’s broadly in line with the fall in SWAP rates since the end of last year.
It’s important to acknowledge, however, that markets remain uneasy about the government’s ability to reduce borrowing and deliver a credible deficit-cutting plan. That scepticism is keeping gilt yields – and therefore Swap rates – higher than they ought to be based on fundamentals, which may limit further reductions in mortgage pricing.
Even so, mortgage rates are materially lower than they have been, meaning more landlords are now able to transact. That is reflected in the lending data.
HEALTHY DEMAND
Another major tailwind is tenant demand. The rental market remains exceptionally strong, with no sign of easing. According to the ONS, private rents rose 5% to an average of £1,360. Meanwhile, yields remain attractive, averaging a healthy 6.3% in September, according to UK Finance.
Given that rents and yields are central to landlord profitability, it is no surprise that 87% of landlords reported being in profit in Q2, according to Paragon Bank. Two years ago, that figure was significantly lower at 77%.
The sector is proving more resilient than many give it credit for – especially considering the combination of higher finance costs, sluggish economic growth and increasing regulation it faces.
THE YEAR AHEAD
Which brings us to the outlook for 2026. The recent Autumn Budget was not exactly landlord-friendly, but it was also far from the hammer blow some feared.
The decision to raise income tax on personally-owned rental property will tighten margins for some, but the impact is mitigated by the steady shift towards incorporation. Hamptons, the estate agent, expects a record 67,000 limited company formations in 2025, bringing the total to roughly 450,000.
The Renters’ Rights Act, due to implement phase 1 next May, will add friction and some additional administrative burden. But its impact has been overstated by some commentators, especially as the sector continues to professionalise.
Taken together, the fundamentals remain positive. Tenant demand is exceptionally strong, yields are attractive, mortgage rates are lower than the peaks of the past two years, and lending is growing despite significant headwinds.
Unless those underlying factors change dramatically – and at present there is little evidence they will – we should achieve £42bn of lending in 2026, which after 2022, would be the second-best year since the COVID-19 crisis.
For a market that has endured more than its fair share of turbulence recently, that is something worth raising a glass to over the Christmas period.
