Buy-to-let lending rose sharply in Q3 2025, with new UK Finance data showing both higher borrowing activity and stronger rental yields despite the looming introduction of the Renters’ Rights reforms.
UK Finance said there were 59,467 new buy-to-let (BTL) loans advanced in the UK in the third quarter of 2025, worth £10.9bn. That’s a 22.7% increase compared with the same quarter a year earlier, revealing an ongoing appetite for investment in the sector.
Yields strengthen as returns improve
That may be because returns are rising. UK Finance found the average gross BTL rental yield across the UK in Q3 2025 was 7.15%, up from 6.93% in the same quarter last year.
Borrowing costs ease and affordability improves
At the same time, borrowing costs have fallen. UK Finance reports the average interest rate across all new BTL loans was 4.85% in Q3 2025, which is lower than both the previous quarter and the same period in 2024.
Affordability has also improved, with the average buy-to-let interest cover ratio (ICR) increasing to 215% in Q3 2025, up from 195% in Q3 2024 and 210% in the previous quarter. The ICR is the measure lenders use to check whether the rent coming in is enough to comfortably cover the monthly mortgage interest payments — and a higher number typically indicates a bigger buffer.
‘Professional landlords are recalibrating’ ahead of reforms
According to Marylen Edwards, director of mortgages at specialist lender MT Finance, the figures reflect a market adjusting its approach ahead of the next regulatory phase.
“This data provides a compelling snapshot of a market in strategic transition. While the industry prepares for the Renters’ Rights Bill changes, which start to come into force from May 1st, professional landlords aren’t just surviving, they are recalibrating.”
Edwards adds that the lending uplift and easing interest rates are having a big influence on investor behaviour.
“We are seeing an increased year-on-year surge in lending value, while the average interest rate for new BTL loans has eased to 4.85 per cent, down 37 basis points from a year ago. This softening is pushing the recalibration of portfolios as landlords lock in stability before the May 1st deadline.
“Despite the headwinds of 2025’s rate environment, it is clear the sector is still actively transacting, and business continues to grow.”
Edwards also points to a change in investors’ focus, saying: “The Q3 data reveals a definitive flight to quality, where equity-rich, professional investors are capitalising to strengthen and diversify their portfolios.
“New landlords coming into the market are looking at longer-term strategic capital gains and the ability to uplift and grow a portfolio.”
Fixed rates dominate as portfolios shift
There has also been a notable shift towards fixed-rate borrowing. The number of BTL fixed rate mortgages outstanding in Q3 2025 was 1.44 million, up 2.3% year-on-year, while the number of variable rate loans outstanding fell by 9.7% to 488,000.
Howard Levy, director of mortgage broker SPF Private Clients, believes the data reflects a market increasingly shaped by larger operators.
“Many smaller portfolio landlords who held in their own name have left the market, which has paved the way for the larger buy-to-let investors to provide the stock for this still rising demand.”
However, Levy cautioned against reading too much into quarterly movements, given the impact of recent tax and policy changes.
“Looking at any specific quarter is slightly misleading as the various changes that occurred in 2024 with taxation, relief, and the SDLT surcharge increase delivered in the October Budget of 2024 could have skewed the figures that quarter.”
He adds that the next set of figures would show whether the lift in lending is sustained. “It will be interesting to see if the number of loans advanced reverts back next quarter as compared to Q1 2025.”
Improvements in affordability
For Levy, one of the most striking points in the UK Finance release was the strength of affordability.
“For me, the most interesting point is that the ICR coverage was 215%.
“This would potentially mean that rates were booked and fixed at a low point, that LTVs are low on average, or rents have risen drastically.”
And he says the result likely reflects a combination of those factors, adding: “In reality, it is probably a combination of all of these.”
Levy also pointed to the likelihood that rental costs could continue rising as landlords face higher compliance costs under incoming reforms.
“If rents do continue to rise to cover the extra costs that the government are requiring landlords to pay, then we can expect this figure to rise even further.”
