The number of refinanced properties surged, as interest rates dropped by 29 basis points (bps) versus the same time last year and were 6bps lower than in the previous quarter. The average interest across all BTL loans was 4.71% in Q1 2026.
Louisa Sedgewick, managing director of mortgages at Paragon Bank, said: “Remortgaging remained a significant driver of lending and was higher than a year earlier. This points to landlords actively refinancing as they respond to broader affordability considerations and manage their portfolios, including supporting longer-term plans such as expansion and investment in existing properties.”
England sees biggest fall in new BTL values
Across Q1 2026, there were 58,272 new BTL loans advanced in the UK, worth £10.8bn. This was up 7.02% by value.
As loans fell for house purchases in Q1, England led the charge, with an 18% decrease year-on-year in the value of new house purchase BTL lending to £2.537m. The total number of new house purchase BTL loans fell in England by 18.7% year-on-year to 14,322.
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However, Wales experienced a year-on-year surge in the value of new BTL lending, with an 18.5% increase to £86m. The number of loans increased by 20.6% to 753.
Scotland underwent the largest surge in house purchase loans, up by 22.6% year-on-year to 1,365.
Contrastingly, purchase volumes in London were down by a considerable 23.3%.
Fixed rates favoured over variable rates
At the end of Q1 2026, there were 1.466 million fixed rate BTL mortgages outstanding, which represented an annual increase of 1.4%. In contrast, the number of variable-rate mortgages fell by 9.5% year-on-year to 453,000.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Landlords continue to favour fixed rate mortgages for the certainty they bring in what are volatile times in terms of pricing, with the number opting for variable rate loans falling… this downwards trend [is] a further factor encouraging landlords to invest. With the average interest cover ratio rising thanks to falling lending rates, landlords are not overstretching themselves.”
The average BTL interest cover ratio (ICR) for the UK in Q1 2026 was 221%, up from 204% in Q1 2025 and 218% in the previous quarter.
BTL rental yields increase
As rents rise and mortgage costs fall, there was a material improvement in landlords’ returns.
The average gross BTL rental yield for the UK in Q1 2026 was 7.21%, compared with 6.93% in the same quarter a year previously.
Rental yields were up 0.07% year-on-year in Scotland to 8.62%, the highest yield of all nations. England experienced the largest rise in yield by 0.24% year-on-year to 7.04%, although this was the smallest yield across all nations.
Mortgage health improves
BTL arrears have fallen by almost a quarter; there were 8,960 mortgages in arrears, down 24.3% year-on-year.
Harris added: “With the number of landlords in arrears falling and possessions unchanged, the outlook for the sector is brighter than one might think given that the regulatory and tax burden on investors is increasing. The sector is becoming more professional and with more landlords incorporating in order to maximise returns.”
The number of portfolio landlords also increased, indicating the professionalistion of the sector.
Lending to non-portfolio landlords – defined as those with 1-3 mortgaged rental properties – reached £7.7bn, an increase of 5.5% year-on-year. Meanwhile, lending to portfolio landlords – who own four or more mortgaged rental properties – totalled £3.2bn, rising by a stronger 10.7% compared with the same period last year.
Richard Pike, sales and marketing director at Phoebus Software, said: “While some smaller landlords have chosen to exit amid higher costs and regulatory change, larger portfolio landlords continue to invest and adapt. The trend shows the buy-to-let market is becoming more professional, not less resilient.”
He added: “As portfolios become more sophisticated, servicing will play an increasingly important role in maintaining performance, identifying risk, and delivering better customer outcomes, and so it’s vital that lenders have the right servicing partner.”
