The bank body adds that the number of outstanding BTL mortgages also shrank for the first time, falling from 2.039 million in the first quarter of last year to 1.98 million in the first quarter of this year.  

It says: “Rapidly rising interest rates played a major role in this trend, making it harder for those looking to buy a BTL property to pass lenders’ affordability tests.”  

“The stamp duty surcharge on second and subsequent properties, which came into force in 2016, and the progressive removal of higher-rate income tax relief on mortgage payments for rental properties, have also made being a BTL landlord more challenging and less attractive.”  

The body points out that despite rents increasing, “the rising costs of being a landlord means that it’s not as profitable as it once was”.   

In the first quarter of 2018, the average interest cover ratio – which is how much of a landlord’s mortgage costs are covered by their rental income – was 342%. In the first quarter of this year, it was 191%.  

The body adds that most BTL borrowers continue to choose fixed-rate mortgages, with 90% of new lending during the past two years being done on a fixed-rate basis.   

However, when compared with the residential sector, a larger proportion of BTL mortgages are on variable rates.  

This has contributed to proportionally more BTL mortgage holders falling into arrears.

At the end of the first quarter of this year, 13,570 of the 1.98 million outstanding BTL mortgages were in arrears.  

The association says: “While this is a 93% increase on the same quarter a year ago, it’s still just 0.68% of all BTL mortgages and the number hasn’t increased since the last quarter of last year.  

“The proportion of BTL mortgages in arrears has risen more than among residential mortgage holders because most BTL mortgages are interest-only. As such, they’re more affected by higher interest rates.”  

The study by the body shows there were 600 BTL possessions during the first quarter of this year, compared with 430 in the same quarter a year ago.  This is a 40% increase, but still below the number before the pandemic.  

UK Finance head of analytics James Tatch says: “A flexible and well-run private rental sector is an essential part of the housing market. Landlords face a number of challenges, from changing regulations to rising interest rates, but have shown resilience.  

“However, given the new government is committed to abolishing Section 21 ‘no fault’ eviction notices, it must make sure that responsible landlords have other options when they have legitimate reasons to take their property back.  

“Without more unexpected negative shocks, strong rental demand and strong lending standards could mean the buy-to-let sector emerges from last year’s downturn sooner than previously expected. Also, that further rises in arrears are limited.”