Lending on buy-to-let mortgages is expected to decline by 2025 as landlords face more difficult circumstances.
This is according to forecasts from 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 October, Budget Chancellor Rachel Reeves announced a 2% increase in stamp duty for second homes. It means that landlords or anyone who owns a second home next to their own home will now have to pay a 5% surcharge.
UK Finance said pressure on costs and rates had seen the buy-to-let market shrink by 2023. However, there was a modest recovery in 2024, with home purchase loans to landlords growing 13% to £10 billion thanks to falling mortgage rates.
As the sector continues to adapt to the many challenges it faces, the company expects buy-to-let purchasing activity to shrink by 7% to £9 billion by 2025.
However, the prospects for residential mortgages are better. UK Finance predicts a gradual improvement in mortgage affordability by 2025.
With interest rates expected to fall this year, UK Finance expects the number of people in mortgage arrears to fall.
James Tatch, head of analysis at UK Finance, said: “The mortgage market showed greater resilience than previously expected in 2024 as pressure on costs and rates began to ease.”
He added: “In 2025, we forecast continued steady growth in both home purchases and remortgage lending as affordability continues to improve. However, we predict a slight decline buy to rent lending in 2025.
“The prudent underwriting standards introduced over the past decade have helped most customers who may have been in trouble. Delinquencies appear to have peaked in early 2024 before declining again, and we expect them to decline again in 2025.
“Any customer experiencing financial difficulties should speak to their lender at an early stage as the sector continues to offer a range of tailored support options to anyone who needs help.”