For rent real estate sign
The value of buy-to-let mortgages has shrunk for the first time in 30 years as rising borrowing costs and strict lending rules forced landlords out of the market.
Data from UK Finance showed that outstanding mortgage volumes to landlords fell for the first time since 1996, when bespoke loans for property investors were first introduced.
According to UK Finance, the number of outstanding mortgage payments to buy to let in the first three months of 2024 totalled 1.98 million, down from 2.039 million in the same period last year and marking the first ever annual decline.
The data also shows that far fewer homeowners with mortgages are entering the market than in the past.
New loans to investors buying property fell to 12,422, down 18% from a year ago, more than half of the 25,280 issued in the final three months of 2022.
The UK Finance figures provide the most concrete evidence yet of the absence of a new generation of investors in the face of increasing regulation and rising borrowing costs.
James Touch of UK Finance said Labour's rental market reforms risk putting further pressure on landlords.
A new Tenants' Bill of Rights was announced during Wednesday's King Speech, promising greater protections for tenants and an immediate ban on no-fault evictions, but critics warn the reforms risk leaving landlords with no recourse to evict problem tenants.
Mr Touch said: “A flexible and well-run private rented sector is a vital part of the housing market and although landlords face many challenges, from regulatory changes to rising interest rates, they are showing resilience.”
“However, with the new government committed to abolishing section 21 'no-fault' eviction notices, we must ensure that responsible landlords have other options when it comes to repossessing properties for legitimate reasons.”
The National Housing Association warned that Labour must ensure that reforms “do not exacerbate an already severe supply crisis in the private rented sector”.
Rents across the UK are rising at a record pace as landlords sell properties and the supply of available properties is squeezed.
Official data released last week showed rents in England rose 8.6% in the year to June, with London recording a 9.7% increase.
According to Zoopla, there are currently 15 people competing for each rental home, more than double the pre-pandemic average of six.
These factors have left renters struggling to find a place to live amid rising rent prices, while investors are shunning the real estate sector in search of safer returns.
UK Finance said in the report that landlords have faced a tough environment since the introduction of an increase in stamp duty on property additions in 2016.
The story continues
They also lost the right to a phase-out of the higher-rate income tax deduction for mortgage interest payments on rental properties.
But the industry group said that while this “undoubtedly put some brakes” on rental property lending, the number of mortgages being written was growing until interest rates began to rise sharply.
Rising inflation over the past three years has pushed borrowing costs to a 16-year high of 5.25%, meaning mortgage rates could double or triple for many borrowers.
While rent-to-own investor delinquencies remain rare, the number of delinquencies rose 93% year-on-year to 13,570 in the first three months of the year.
Meanwhile, lenders foreclosed on 600 properties that had landlord foreclosures in the first three months of the year, a 39.5% increase on a year earlier.
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