Buy-to-let mortgage lending increased by 18.2% year-on-year in the final quarter of 2025, though growth was concentrated in remortgaging rather than new property purchases, according to data from UK Finance.
A total of 59,489 new buy-to-let loans worth £11.2bn were advanced in the UK between October and December, representing a 21.3% increase by value compared with the same period in 2024. However, demand for new purchase loans remained subdued, with activity in this segment falling slightly.
Improving yields and lower rates
The average gross rental yield rose to 7.18% in Q4 2025, up from 6.99% a year earlier, while the average interest rate on new buy-to-let loans fell to 4.77%. This represented a decline of eight basis points from the previous quarter and 32 basis points lower than Q4 2024.
Falling borrowing costs pushed the average interest cover ratio to 218%, compared with 201% a year earlier. The number of fixed-rate buy-to-let mortgages outstanding increased by 2% year-on-year to 1.46 million, while variable-rate loans fell by 9.8% to 466,000.
Arrears decline but possessions rise
Arrears declined over the quarter, with 9,520 buy-to-let mortgages in arrears of more than 2.5% of the outstanding balance, down by 910 compared with Q3. However, possessions rose to 770 cases, a 10% increase from 700 in the same quarter of 2024.
James Tatch, head of analytics at UK Finance, said the market had shown resilience but warned that underlying demand remained weak. “The buy-to-let market overall was resilient at the end of last year, with the number of loans advanced around a fifth higher than at the same time the previous year,” he said. “But, with growth concentrated in remortgage markets, new demand for BTL purchase remains fragile.”
Regulatory pressures weigh on investment
Tatch noted that recent instability in the mortgage market has pushed up borrowing costs, which may dampen remortgaging growth. He added that regulatory and tax measures, combined with the Renters’ Rights Act coming into force next month, are likely to continue weighing on new demand activity.
Megan Eighteen, president of ARLA Propertymark, said the figures highlighted continued fragility in purchase activity. “Strong tenant demand continues to underpin the sector, providing some stability for existing landlords, although wider economic uncertainty, including global events, may influence borrowing costs in the months ahead,” she said.
The comments come as rental price growth has shown signs of stagnation for the first time in several years, reflecting changing market dynamics.
Richard Pike, chief of sales and marketing at Phoebus Software, noted that improving rent yields supported growth in Q4, though the current fiscal environment has changed significantly. “Although our clients report completions generally remain strong, this may impact confidence and affordability in the short term,” he said.
Outlook for 2026
UK Finance expects a broadly flat picture for buy-to-let purchase lending in 2026 compared to 2025 levels. Industry observers suggest that without changes to the regulatory and tax environment, new investment in the sector is likely to remain constrained despite improved rental yields and recent interest rate reductions.
