Lending on buy-to-let mortgages is expected to fall in 2025 as landlords face more challenging conditions.
This is according to forecasts by banking trade body, UK Finance, which said the increase in the stamp duty surcharge on top of other regulatory and tax burdens will act as a ‘further deterrent’ to the market.
In the October Budget Chancellor Rachel Reeves announced a 2% increase in the stamp duty for second homes. It means landlords or anyone owning a second property on top of their own residential home, now must pay a 5% surcharge.
UK Finance said cost and rate pressures had shrunk the buy-to-let market in 2023. However, there was a modest recovery in 2024 with house purchase lending to landlords growing by 13% to £10 billion thanks to falling mortgage rates.
It said whilst the sector was continuing to adapt to meet the many challenges faced, it expected buy-to-let purchase activity to contract by 7% to £9 billion in 2025.
For residential mortgages, however, the outlook is better. UK Finance is forecasting a gradual improvement in mortgage affordability in 2025.
With interest rates expected to fall over the year, UK Finance is expecting the number of people in mortgage arrears to reduce too.
James Tatch, head of analytics at UK Finance, said: “The mortgage market showed greater than previously expected resilience in 2024 as cost and rate pressures began to recede.”
He added: “In 2025 we are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves further. We are however forecasting a slight fall in buy-to-let lending in 2025.
“The prudent underwriting standards in place for the past decade have helped most customers who might have fallen into difficultly. Arrears look to have peaked early in 2024 before falling back, and we expect them to fall again in 2025.
“Any customer who finds themselves in financial difficulty should speak to their lender at an early stage, as the industry continues to provide a range of tailored support options to anyone who needs help.”
