The Market Picture, Step by Step
1. Lending momentum is back, compared with 2024
UK Finance reports 58,347 new buy-to-let loans in Q1 2025, worth £10.5bn—up roughly 39% by number year on year. Average gross rental yields are sitting around 6.9%. Activity is no longer frozen. Investors are transacting again, especially where yields clear new-normal financing costs.
2. The recovery is patchy, not a straight line
The Bank of England's Money and Credit data shows mortgage purchase approvals at 64,700 in August 2025, slightly down from July, with gross lending at £22.7bn. The summer wobble suggests sentiment remains rate-sensitive and headline-driven. Momentum exists, but confidence is still brittle.
3. Rents remain elevated in historical terms, propping up yields
ONS data indicates average UK private rents rose 5.7% in the year to August 2025, with a provisional average of £1,348 per month. Growth has cooled from the 2022-2023 spikes, yet remains well above pre-pandemic norms. Tight supply—especially in family homes and commuter belts—is doing the heavy lifting.
4. Arrears have eased from the peak, but sit above the pre-2022 baseline
UK Finance notes 11,830 BTL mortgages in arrears over 2.5% of balance at end-Q1 2025, down quarter on quarter. Possessions were 810 in Q1, higher than a year earlier. Translation: acute stress is fading, chronic stress remains. Problem loans are concentrated amongst highly leveraged, lower-yield stock and landlords who fixed late.
5. Where you buy matters
Paragon analysis points to stronger first-half purchase volumes in the Midlands and North. The arithmetic is straightforward: cheaper entry prices, fatter yields, and rental demand less exposed to top-quartile affordability caps than the South.
What This Means in Practice
Yields are doing their job, but the margin for error is thinner. A 6-7% gross yield can still work at 5-6% mortgage rates, provided voids are low and maintenance is managed. Where costs rise faster than rents, cash flow turns knife-edge. That's why arrears have stopped rising quickly but settled at a higher base.
Refinancing is the next test. The cohort that fixed around 2020 at sub-2% is rolling over now. Many will face rates above 5%. Options: raise rents, inject equity, accept lower returns, sell, or restructure. The choice is portfolio-specific, and lenders will triage by loan performance, equity buffer, and local rental resilience.
Key Data Points
"Momentum is back in BTL, but it's uneven. Arrears are no longer rising quickly—they're settling at a higher base."
UK Finance
"Rent growth is slowing, but still historically strong, which cushions yields."
Office for National Statistics
Sources
UK Finance BTL Market Update Q1 2025 | Bank of England Money and Credit August 2025 | ONS Private Rent and House Prices September 2025 | Paragon Regional Activity Note September 2025
Bottom line: Buy-to-let is back in business, just with less slack in the system. The winners in 2025 are the landlords, lenders, and advisers who get ahead of the refinancing calendar and price risk by street, not just by sector.