THE PROPERTY FILTER TAKE
Morningstar DBRS research reports BTL loans 30 or more days in arrears fell to 2.9% as of July 2026, from a peak of 4% two years ago.
Rent cover is stronger, with UK Finance putting the average ICR at 221% in Q1 2026, but tax and compliance costs are rising at the same time.
Consider checking each property's licence conditions, EPC rating and rent cover against the April 2027 property income tax rates before your next refinance.
BTL (buy-to-let) arrears are falling. The share of BTL loans in 30 or more days of arrears fell to 2.9% as of July 2026, down from a peak of 4% two years ago. That comes from Morningstar DBRS research reported by Mortgage Solutions (24 September 2026). The report says rents are now outpacing borrowing costs. But it also warns that tax and regulation are eating into what landlords keep.
How far have BTL arrears fallen?
The headline number is the 30-day measure. As of July 2026, 2.9% of BTL loans were 30 or more days behind, against a peak of 4% two years ago (Morningstar DBRS, via Mortgage Solutions). That is a fall of 1.1 percentage points. Serious arrears moved the same way: loans 90 or more days behind fell from 2.4% to 1.8% over the same period.
The report describes a clear arc. Arrears rose sharply during 2023 and 2024, steadied in 2025, and have now started to fall. Still, Morningstar DBRS says arrears remain relatively high compared with pre-pandemic levels. It links that to pressure on BTL profitability from higher financing costs.
The age of the loan matters. Loans written before the global financial crash had 30-plus and 90-plus day arrears of 7.5% and 5.4% respectively as of July 2026 (Morningstar DBRS, via Mortgage Solutions). Loans written after the crash performed better, which the report puts down to tighter underwriting standards. If you hold an older variable-rate loan, that gap is worth knowing about when you compare refinancing options and lender approaches.
Are rents really outpacing mortgage costs?
On the rent side, the figure checks out at source. The Office for National Statistics private rent bulletin shows average UK monthly private rent rose 3.7% to £1,393 in the 12 months to July 2026. The ONS marks that as a provisional estimate, open to revision.
The comparison is the tricky part. Mortgage Solutions reports that 3.7% rent rise against a 2.8% rise in "average BTL mortgage costs". The article does not say who measured the 2.8% or over what period. So treat the gap of 0.9 percentage points as indicative, not like-for-like.
Rent cover gives a firmer read. ICR (interest cover ratio) is rent as a percentage of the mortgage interest payment. It averaged 221% in Q1 2026, up from 204% in Q1 2025, according to UK Finance data reported by The Intermediary. Morningstar DBRS notes that is below pre-2022 levels, when ICRs typically exceeded 300%. But it remains well above the 125-145% range BTL loans are underwritten to.
In plain numbers, a 221% ICR means rent is 2.21 times the interest bill. On a hypothetical property with £1,000 of monthly interest, that is £2,210 of monthly rent. You can test your own deals against lender thresholds with our free BTL stress test calculator.
Why is the BTL mortgage market still shrinking?
Better performance has not meant a bigger market. Morningstar DBRS says refinancing, not new purchases, is driving the trend. New lending rose 3.3% in Q1 2026, yet originations remain subdued compared with 2021 and 2022 (Morningstar DBRS, via Mortgage Solutions).
The stock of outstanding BTL mortgages fell by around 1.3% year-on-year in Q1 2026, continuing a decline since Q1 2023. The report links this to higher rates and costs and to the Renters' Rights Act. As fixed rates ended, some landlords sold up. That suppressed supply and supported rental growth.
The report's view is blunt. For some landlords, selling up would be the "only sensible option". Smaller, self-employed landlords may find restructuring into a limited company too costly. That could open opportunities for larger corporate landlords, especially if rates fall and rents keep rising. If you are weighing that question, our guide hub on business structure and systems is a useful starting point.
What tax and compliance changes does the report flag?
The report lists several pressures. Here is what I could verify at GOV.UK.
Making Tax Digital (MTD) is HMRC's digital record-keeping and reporting regime for self-employment and property income. It started on 6 April 2026 for landlords with qualifying income over £50,000 in the 2024 to 2025 tax year (GOV.UK). The report says it "created additional hurdles for landlords".
Dividend tax rose by 2 percentage points from April 2026. The ordinary rate went from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%, with the additional rate unchanged (GOV.UK, 26 November 2025). That cuts what landlords can take out of a limited company.
From April 2027, property income gets its own rates: 22% basic, 42% higher and 47% additional, per GOV.UK. Finance cost relief will be given at the 22% property basic rate. HM Treasury said the rates apply in England, Wales and Northern Ireland, as reported by Mortgage Solutions (26 November 2025). Speak to your accountant about what this means for your own position.
Energy efficiency is the other cost. The report says the government is proposing that rental homes reach at least EPC (Energy Performance Certificate) band C by 2030. The source does not state which UK nations this would cover. Separate Morningstar DBRS research suggested landlords made only the minimum improvements needed to meet past standards.
For HMO (house in multiple occupation) owners, the report gives no separate figures. If you run shared houses, you may wish to check each licence renewal date against any planned EPC works, and review room-level values with our HMO valuation calculator.
Key takeaways
BTL loans 30 or more days in arrears fell to 2.9% as of July 2026, from a peak of 4% two years ago (Morningstar DBRS, via Mortgage Solutions).
Average UK private rent rose 3.7% to £1,393 in the 12 months to July 2026, a provisional ONS estimate.
The average BTL interest cover ratio was 221% in Q1 2026, up from 204% a year earlier (UK Finance, via The Intermediary).
Outstanding BTL mortgages fell by around 1.3% year-on-year in Q1 2026, so the market is still shrinking even as performance improves.
From April 2027, property income is taxed at 22%, 42% and 47% in England, Wales and Northern Ireland, which is worth building into rent cover checks now.
Frequently asked questions
Are buy-to-let arrears going down?
How much did UK rents rise in the year to July 2026?
What is a good interest cover ratio for a BTL mortgage?
When do the new property income tax rates start?
Does Making Tax Digital apply to landlords?
