Buy-to-let mortgage lending increased year-on-year in the final quarter of 2025, according to UK Finance, largely driven by landlords refinancing existing loans rather than new investment.
A total of 59,489 new buy-to-let loans were made in the UK between October and December, worth £11.2 billion. This represents an increase of 18.2% in number and 21.3% in value compared to the same period a year ago.
Although growth was concentrated in remortgage activity, demand for new purchase loans remained low.
The average gross rental yield rose to 7.18% in the fourth quarter of 2025, 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 from the same quarter in 2024.
Fall in borrowing costs also led to the average interest cover ratio rising to 218% from 201% a year ago.
The number of outstanding fixed-rate buy-to-let mortgages increased 2% year-on-year to 1.46 million, while variable rate loans fell 9.8% to 466,000, reflecting the continued shift towards fixed-rate products.
Arrears declined during the quarter, with 9,520 buy-to-let mortgages outstanding at more than 2.5% of the outstanding amount – 910 fewer than in the third quarter. However, assets increased to 770, a 10% increase from 700 in the same quarter of 2024.
James Tach, head of analytics at UK Finance, said the market has shown resilience but warned that underlying demand remains weak.
“The buy-to-let market was resilient overall at the end of last year, with the number of loans up by almost a fifth compared to the same time last year,” he commented. “But, with growth concentrated in the remortgage markets, new demand for BTL purchases remains fragile, declining slightly in Q4 compared to the same quarter a year ago.
“Investors took advantage of falling interest rates to refinance their borrowings, although mortgage market volatility in recent weeks has pushed up borrowing costs, which may dampen BTL remortgaging growth somewhat.
“However, a combination of regulatory and tax measures already in place, coupled with measures in the Tenants’ Bill of Rights, which will come into force next month, are likely to continue to put pressure on new demand activity. We expect a broadly flat picture for BTL purchase loans this year compared to the levels seen a year ago.”
Megan Eighteen, chair of ARLA Propertymark, said: “The latest UK finance figures show buy-to-let resilience, but this is largely driven by re-mortgage rather than new investment, highlighting the continued weakness in purchase activity.
“Strong demand from tenants is underpinning the sector, providing some stability for existing landlords, although macroeconomic uncertainty, including global events, may impact borrowing costs in the coming months.
“However, the Tenant Rights Act as well as tax and regulatory changes, soon to be introduced in England, will continue to limit new entrants.”
He added: “A more balanced approach supporting both tenants and responsible landlords will help to stimulate investment and improve supply, thereby reducing upward pressure on rents over time.”
Richard Pike, head of sales and marketing at Phoebus Software, said: “Although growth in buy-to-let has been uneven throughout the year, the latest figures show a clear resurgence in activity by the end of 2025.
“What is particularly encouraging is that this growth is being supported by improving rental yields. Rates were also generally falling in Q4, but this has now changed significantly with the current financial environment, and although our clients report that closings generally remain strong, this may impact confidence and affordability in the short term.”