The buy-to-let (BTL) sector is beginning to recover from a challenging period marked by rising costs and regulatory changes. Recent data indicates a decline in arrears and an increase in the average interest cover ratio, suggesting a stabilisation in the market despite ongoing challenges for landlords.
TL;DR: The share of BTL loans in arrears has decreased; however, the overall size of the BTL mortgage market continues to contract, affecting landlords and investors.
What are the current trends in BTL arrears?
As of July 2026, the proportion of BTL loans in arrears for 30 days or more has fallen, a significant drop from a peak two years prior. Similarly, loans with 90 or more days in arrears decreased over the same timeframe. This decline in arrears is a positive sign for the sector, indicating that landlords are managing their finances more effectively despite rising costs.
How are BTL mortgage costs impacting landlords?
Despite the improvement in arrears, BTL mortgage costs have risen. The average interest cover ratio (ICR) has also seen an uptick, reaching a level higher than the previous year. Although this is lower than pre-2022 levels, it remains above the underwriting range for BTL loans. This indicates that while landlords are facing higher costs, many are still able to meet their mortgage obligations.
What does the future hold for the BTL mortgage market?
While the BTL sector is showing signs of recovery, the overall market size continues to contract. BTL originations remain subdued compared to the high levels seen in previous years, despite an increase in recent quarters. This growth is primarily driven by refinancing activity rather than new purchases, suggesting that many landlords are opting to restructure existing debts rather than expand their portfolios.
Several factors are contributing to this contraction, including higher interest rates and the introduction of the Renters’ Rights Act. Additionally, new tax regulations, such as reduced allowances for capital gains tax and a stamp duty surcharge on additional residential properties, are creating further financial pressures for landlords. The Making Tax Digital rules implemented earlier this year have also added complexity to landlords’ financial management.
What this means for landlords and investors
For landlords, the recent trends indicate a need for careful financial planning. While the reduction in arrears is encouraging, the rising costs and regulatory changes mean that many may need to reassess their strategies. Smaller, self-employed landlords might find it challenging to restructure their businesses into limited companies due to the associated costs and efforts. In contrast, larger corporate landlords may see this as an opportunity to invest, particularly if interest rates decline and rental prices continue to rise.
Furthermore, upcoming energy-efficiency regulations requiring rental properties to achieve a minimum Energy Performance Certificate (EPC) rating may necessitate significant investments. This could reshape landlord behaviour and influence credit risk dynamics across the housing market.
Frequently asked questions
What are the implications of rising BTL mortgage costs?
Rising BTL mortgage costs can strain landlords’ finances, making it more challenging to maintain profitability. Landlords may need to increase rents to cover these costs, which could impact tenant affordability and demand.
How can landlords prepare for upcoming regulatory changes?
Landlords should stay informed about regulatory changes and consider investing in energy-efficient upgrades to meet future EPC requirements. Financial planning and potentially restructuring into limited companies can also be beneficial for managing tax implications.