The buy-to-let market has shrunk for the first time since almost 30 years

Buy-to-let mortgage values have shrunk, for the first three decades. This is due to the high borrowing costs and lending regulations that are forcing landlords out of the market.

UK Finance data showed that the number of outstanding loans to landlords had fallen for the very first time since 1996 when the first bespoke loan for property investors was introduced.

UK Finance reported that there were 1,980,000 buy to let mortgages outstanding in the first quarter of 2024. This is down from 2,039,000 one year ago, the first annual decline.

Data also shows that fewer landlords with mortgages are now entering the market.

The number of new loans to investors for the purchase of property has dropped by 18% from the previous year. This is more than half of the 25,280 loans that were issued in the last three months 2022.

The figures released by UK Finance are the most concrete proof to date that a new generation is not investing in the face tighter regulations and increased borrowing costs.

James Tatch, from UK Finance, said that the Labour’s shake-up of the rental market could exacerbate pressure on landlords.

In his speech on Wednesday, the King announced a new Renters’ Rights Bill that would provide greater protections to tenants and ban no-fault evictions. Critics have said that the reforms could leave landlords with no way to evict problematic tenants.

Mr Tatch stated: “A well-run and flexible private rental sector is essential to the housing market. Landlords have faced a variety of challenges, including changing regulations and rising interest rates. However, they have shown resilience.

“However,” the statement continued, “given that the new government is committed to abolishing Section 21, ‘no-fault’ evictions, it should ensure responsible landlords are given other options when they have valid reasons to reclaim their property.”

The National Residential Association has warned that Labour should ensure that its reforms do not “exacerbate an already severe supply crisis in private rental sector”.

Rents in the UK are rising at an unprecedented rate as landlords move to sell their properties, which is reducing the available supply.

Data published by the UK government last week revealed that UK rents increased 8.6pc from June to June. London saw a 9.7pc rise.

According to Zoopla there are 15 renters competing for each home. This is more than twice the average number of six before the pandemic.

Renters struggle to find a place to live as costs continue to rise, and investors are looking elsewhere for safer returns.

UK Finance reported that landlords are facing a difficult environment since 2016, the year a surcharge for stamp duty on additional properties came into effect.

The progressive reduction of income tax relief at higher rates on rental mortgage interest payments is also removed.

The trade body stated that while the interest rate spikes “undoubtedly” put a halt to buy-to-let loans, the number had been increasing until then.

The borrowing costs are at a 16-year record high, and now stand at 5,25pc. This means that many borrowers have seen their mortgage rates double or triple.

Arrears are rare amongst buy-to let investors, but they rose 93pc, to 13,570 mortgages, from January to March compared to a year ago.

In the first quarter of this year, lenders repossessed 600 mortgaged properties to landlords. This is a 39.5pc increase from the same period last year.