500 BTL mortgage repossessions took place in the last quarter of 2023, up 56% from the previous year, but still down by historical comparison
According to new data released by UK Finance, the BTL market has been hammered by elevated interest rates, with lending slumping and arrears rising.
The value of new BTL lending more than halved in the last quarter of 2023 compared to a year ago, declining to £6.3 billion as demand for new loans dried up.
Excluding the pandemic, this was the lowest level of activity in the BTL market since 2013.
Higher interest rates also piled pressure onto existing borrowers, with 13,570 BTL properties in arrears of over 2.5% of the outstanding balance.
This was 123.9% higher than in the same quarter a year back, although this made up only 0.68% of the total stock of BTL mortgages.
Moreover, 500 BTL mortgage repossessions took place in the last quarter of 2023, up 56% from the previous year, but still down by historical comparison.
The figures reveal the impact of higher interest rates on the sector. Interest rates have risen from 0.1% in December 2021 to a post-financial crisis high of 5.25%, which in turn has fed through into higher mortgage payments.
The interest cover ratio—rental income expressed as a proportion of mortgage interest payments—has dropped by 58 percentage points for landlords YoY.
Most landlords have interest-only mortgages, which means borrowers see a more significant impact than in the residential market.
Arrears and repossessions have risen partly because it is difficult for landlords, who tend to rely on fixed leases, to raise rents each time mortgage payments increase.
Analysts at UK Finance stressed that the BTL sector remained strong.
In spite of the current challenges facing the sector, rental demand stays strong, and most landlords are showing resilience, analysts said in a blog accompanying the figures.