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BTL mortgage arrears ease but landlord possessions edge higher


Buy-to-let mortgage arrears fell again in the second quarter of 2025, offering cautious optimism for landlords, but repossessions crept higher as financial pressures linger. According to UK Finance, 11,270 BTL mortgages were in arrears of more than 2.5% of the outstanding balance — down by 560 cases from the previous quarter.

Falling arrears but more possessions in buy-to-let market
While arrears have improved, the number of buy-to-let possessions climbed 11.3% year-on-year, with 790 repossessions recorded between April and June 2025. The figures underline the uneven recovery across the rental finance sector, where improving affordability contrasts with tightening lender criteria and rising compliance costs.

UK Finance noted that overall BTL lending remained broadly stable. Around 49,590 new buy-to-let loans worth £8.8 billion were advanced in Q2 — just 2.6% lower by number and 0.2% by value than the same period last year. Meanwhile, average rental yields hit 7.26%, up from 6.9% in 2024, reflecting strong rental growth and higher tenant demand.

The average interest rate on new BTL loans rose slightly to 5%, but remained 19 basis points lower than a year earlier. This easing has helped boost the interest cover ratio to 210%, up from 192% in Q2 2024 — a sign that landlords are better positioned to meet repayments despite ongoing tax and regulatory pressures.

Market steadies after Stamp Duty distortions and rate pressures
Louisa Sedgwick, Managing Director of Mortgages at Paragon Bank, said completions were lower than expected but should be viewed in context:

“Landlords brought forward transactions to benefit from higher Stamp Duty thresholds earlier in the year, which distorted Q2 activity. What’s encouraging is that outstanding balances have climbed above £300 billion — a level not seen since 2023.”

Sedgwick’s comments echo a wider trend of consolidation, as professional landlords strengthen portfolios and weaker players exit.

Mark Harris, CEO of SPF Private Clients, added that despite speculation about a landlord exodus, the sector remains resilient:

“The buy-to-let market doesn’t appear to be faring too badly. Mortgage rates have reduced throughout the year, and lenders are broadening their criteria. Those borrowing through limited companies now enjoy more choice and competitive terms, even if rates remain higher than for individual buyers.”

He said the market is “heading towards professionalisation,” as more landlords weigh incorporation to optimise tax efficiency and long-term sustainability.

Cautious optimism ahead of the Autumn Budget
Megan Eighteen, President of ARLA Propertymark, said the mixed results underline the uncertainty facing landlords:

“Inflation remains stubbornly high, interest rates are still above pre-pandemic levels, and Stamp Duty thresholds are less favourable than a year ago. With the Autumn Budget approaching, many investors are holding off until there’s more clarity.”

Eighteen added that sentiment could quickly improve if the Chancellor delivers landlord-friendly measures, such as easing taxation or simplifying mortgage interest relief. For now, however, rising yields and stable lending volumes suggest the buy-to-let market remains steady, even under tighter economic and political conditions.

Editor’s view
Falling arrears and rising yields are signs of underlying strength in the buy-to-let market, even as possessions edge up. The data suggest landlords are adapting — refinancing smartly, incorporating strategically, and staying resilient in a sector still facing legislative headwinds. As the Autumn Budget looms, all eyes are on whether government policy will finally support, rather than strain, private rental investment.

Author: Editorial team — UK landlord & buy-to-let news, policy, and finance.
Published: 23 October 2025

Sources: UK Finance, Paragon Bank, SPF Private Clients, ARLA Propertymark
Related reading: Paragon launches new 75% LTV two-year fixed buy-to-let mortgages from 3.29%

 

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