Buy-to-let mortgage lending increased year-on-year in the final quarter of 2025, driven largely by landlords refinancing existing loans rather than new investment, according to UK Finance.
A total of 59,489 new buy-to-let loans were advanced in the UK between October and December, worth £11.2bn. This represented a rise of 18.2% by number and 21.3% by value compared with the same period a year earlier.
However, the increase was concentrated in remortgaging activity, with demand for new purchase loans remaining subdued.
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 was down eight basis points from the previous quarter and 32 basis points lower than the same quarter in 2024.
Falling borrowing costs also pushed up 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, reflecting a continued shift towards fixed-rate products.
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 commented. “But, with growth concentrated in remortgage markets, new demand for BTL purchase remains fragile, falling slightly in Q4 compared with the same quarter a year ago.
“Investors took advantage of falling interest rates to refinance their borrowing, although instability in the mortgage market in recent weeks has pushed up borrowing costs, which may well dampen the growth BTL remortgaging somewhat.
“However, a combination of the regulatory and tax measures already in place, combined with the measures in the Renters’ Rights Bill, which will come into force next month, are likely to continue to weigh down on new demand activity. We expect a broadly flat picture for BTL purchase lending this year, compared to levels seen a year ago.”
Megan Eighteen, president of ARLA Propertymark, said: “Latest figures from UK Finance show buy-to-let resilience, but this is largely driven by remortgaging rather than new investment, highlighting 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.
“However, tax and regulatory changes, alongside the Renters’ Rights Act, which is soon to commence in England, continue to limit new entrants.”
She added: “A more balanced approach that supports both tenants and responsible landlords would help encourage investment and improve supply, easing upward pressure on rents over time.”
Richard Pike, chief of sales and marketing at Phoebus Software, said: “While growth in buy-to-let has been uneven across the year, the latest figures show a clear resurgence in activity towards the end of 2025.
“What’s particularly encouraging is that this growth is being supported by improving rent yields. Rates in Q4 were also falling generally, but with the current fiscal environment this has now changed quite significantly, and although our clients report completions generally remain strong, this may impact confidence and affordability in the short term.”
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