Buy-to-let mortgage arrears fall, but borrowing pressures remain

What happened

Buy-to-let mortgage arrears fell substantially in the second quarter of 2026, according to UK Finance figures reported on 21 October 2026. The lenders’ trade body counted 8,390 mortgages with arrears above its 2.5% threshold at the end of June, a reduction of 570 from the previous quarter.

The arrears total was 25.6% below the figure for the same quarter in 2025, UK Finance said. Its figures count mortgage accounts rather than individual landlords, an important distinction because a landlord can have borrowing secured against more than one rental property.

UK Finance also recorded 630 buy-to-let mortgage possessions during the three months from April to June 2026. That was 20.3% fewer than in the equivalent period a year earlier. Possessions measure cases during the quarter, whereas the arrears figure describes the position at the quarter’s end.

Lenders advanced 58,051 new buy-to-let loans worth £10.7 billion during Q2 2026, according to the trade body. The number increased by 20.6% compared with Q2 2025, while the value rose by 25%. Those totals cover lending beyond purchases alone, including landlords refinancing existing borrowing.

Loans specifically for buying properties numbered 16,026, UK Finance said, with their volume up 23% and their value up 27.9% year on year. However, the organisation said purchase lending eased slightly compared with the first quarter of 2026. The annual increase therefore does not mean buying activity accelerated during the spring.

The background

UK Finance attributed much of the strong annual lending comparison to the timing of stamp duty changes in the first quarter of 2025. Borrowers brought transactions forward before those changes, leaving activity lower in the following quarter. Comparing Q2 2026 with that weaker period makes the latest increases look particularly large.

The trade body also identified refinancing as a driver of lending, with substantial numbers of fixed-rate mortgages reaching the end of their deals. A replacement loan can add to lending activity without involving another property purchase. That distinction matters when assessing whether the figures indicate landlords expanding their holdings or managing existing debt.

The stock of outstanding mortgages presents a different picture from the flow of new lending. UK Finance said there were 1.46 million fixed-rate buy-to-let mortgages outstanding in Q2 2026, down 0.7% from a year earlier. Variable-rate loans numbered 450,000, a fall of 3%, so both categories were smaller despite the increase in new advances.

Average gross rental yield was 7.27%, compared with 7.26% a year earlier, according to UK Finance. Gross yield measures annual rent against property value before costs; it is not the landlord’s take-home return. Mortgage interest, maintenance, insurance, management charges and tax can all affect what remains, a distinction explored in Property Pulse UK’s coverage of rental yields and property prices.

UK Finance put the average interest cover ratio at 217% in Q2 2026. This measure compares rental income with mortgage interest costs, rather than with every expense of running a rental property. It should therefore be read separately from gross yield: neither measure, on its own, establishes whether an individual landlord is making a net profit.

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What people are saying

UK Finance characterised the figures as evidence of a buy-to-let market better able to withstand pressure, while cautioning against taking the annual lending growth at face value. Its spokesperson pointed to the unusually weak comparison period in 2025. The organisation’s assessment puts more weight on transaction timing than the headline increases alone might suggest.

The trade body described the comparison with Q1 2026 as steadier, with remortgaging rising modestly. Looking ahead, its spokesperson said higher borrowing costs were likely to restrain demand and keep lending growth flatter across 2026. That was an outlook for the market, not a prediction of a particular future arrears total.

Mark Harris, chief executive of mortgage broker SPF Private Clients, interpreted the rise in lending as a sign that investors continued to see opportunities. He suggested that stable rental yields helped explain their interest. In his assessment, experienced landlords were adding properties where the financial case supported a purchase, rather than abandoning the sector altogether.

Harris said the average rate on new buy-to-let loans was 12 basis points higher than in the previous quarter, but 18 basis points lower than a year earlier. Those movements equal a rise of 0.12 percentage points and an annual fall of 0.18 percentage points. The two comparisons show why borrowing can become more expensive recently while still costing less than a year before.

Harris also argued that the sector was becoming more professional, with more landlords using companies to hold investments and improve returns. He linked his more positive assessment to falling arrears and possessions, despite what he described as increasing tax and regulatory burdens. He urged the government to allow landlords time to adjust to recent legislative changes rather than introduce further intervention.

What happens next

UK Finance’s explanation makes the balance between refinancing and purchases an important feature of subsequent lending figures. An increase driven by landlords replacing expiring deals would not carry the same meaning as an increase driven by acquisitions. Its next quarterly comparisons will also provide a different reference point from the unusually subdued spring of 2025.

For landlords approaching the end of a fixed rate, the relevant calculation is the cost of their replacement mortgage, not simply the national average yield. Mortgage pricing is not determined by Bank Rate alone. Property Pulse UK’s coverage of the base rate and mortgage renewals explains the wider uncertainty facing borrowers as existing deals expire.

Comparing replacement offers also means looking beyond the advertised interest rate to fees and any early repayment charges. These can affect the overall cost of refinancing, particularly where loan sizes or deal lengths differ. The practical challenge of comparing products is covered in the report on mortgage deals lasting 13 days.

For a landlord considering another purchase, gross yield is a starting calculation rather than a complete budget. Allowing for periods without rent and property running costs gives a more useful test of affordability. Any eventual disposal also requires a separate tax calculation; Property Pulse UK has reported on landlords awaiting confirmation of capital gains tax rates.

For tenants, these figures describe mortgage borrowing rather than missed rent payments or eviction notices. They do not establish how many rented households were affected by the possessions recorded, or whether an individual tenancy will end. Mortgage accounts, properties and households are different measures, so the national totals cannot answer those questions about a particular rented home.

Why this matters

UK Finance’s figures show fewer buy-to-let mortgage accounts in serious arrears and fewer possessions, but they do not establish that every landlord’s finances have improved. For landlords refinancing or buying, the distinction between gross rental yield and income after costs remains important. For renters, mortgage possession totals are not an eviction count. The stronger annual lending figures also need context: UK Finance attributes much of the increase to last year’s unusually weak comparison period.