The value of buy-to-let mortgages has shrunk for the first time in three decades as soaring borrowing costs and strict lending rules force landlords to exit the market.
Data from UK Finance showed the number of outstanding mortgages to landlords has fallen for the first time since 1996, when bespoke loans for property investors were first introduced.
There were a total 1,980,000 outstanding buy-to-let mortgages in the first three months of 2024, UK Finance said, down from 2,039,000 a year earlier, marking the first ever annual decline.
The data also shows that far fewer mortgaged landlords are entering the market than previously.
New loans for investors purchasing properties have dwindled to 12,422, down by 18pc from a year earlier and more than half the 25,280 loans issued in the final three months of 2022.
The figures from UK Finance provide the most concrete evidence so far of the absence of a new generation of investors in the face of tighter regulations and higher borrowing costs.
James Tatch from UK Finance said pressure on landlords risked being exacerbated by Labour’s rental market shake-up.
A new Renters’ Rights Bill was announced in the King’s speech on Wednesday, promising greater protections for tenants and an immediate ban on no-fault evictions. But critics have warned the reforms risked leaving landlords without a means to evict problem tenants.
Mr Tatch said: “A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.
“However, given the new Government is committed to abolishing Section 21 ‘no fault’ eviction notices, it must make sure that responsible landlords have other options for when they have legitimate reasons to take their property back.”
The National Residential Association warned that Labour must ensure its reforms “do not make an already serious supply crisis in the private rented sector worse”.
Rents across the UK have been rising at a record pace as landlords sell-up, squeezing the supply of available property.
Official data published last week showed UK rents rose by 8.6pc in the year to June, with London recording a 9.7pc increase.
There are currently 15 people competing for every rental home, according to Zoopla, more than double the pre-pandemic average of six.
Such factors mean renters are struggling to find somewhere to live amid spiralling costs, while investors have shunned the sector in favour of safer returns elsewhere.
In its report, UK Finance said landlords have faced a challenging environment since 2016, when a stamp duty surcharge on additional properties was introduced.
They are also no longer entitled to the progressive removal of higher-rate income tax relief on mortgage interest payments for rentals.
But the trade body said while this “undoubtedly put something of a brake” on buy-to-let lending, the number of mortgages had been rising until interest rates started soaring.
Borrowing costs have risen to a 16-year high during the last three years of high inflation and stand at 5.25pc, meaning many borrowers will have seen their mortgage rate double or triple.
While arrears among buy-to-let investors remain rare, they have risen 93pc to 13,570 mortgages in January to March, compared with a year earlier.
Lenders, meanwhile, repossessed 600 properties mortgaged to landlords in the first three months of the year, an increase of 39.5pc from a year earlier.
