UK BTL Mortgage Rates are Still Creeping Up, But Landlords Still Better Off

Octane Capital CEO Jonathan Samuels believes that despite soaring gilt yields, the lending landscape remains favourable for UK landlords. While buy-to-let mortgage rates have crept up since the Autumn Budget, they remain considerably lower annually.

The analysis by specialist lender Octane Capital looked at current buy-to-let mortgage rates and their change over the last year. It shows that in the run-up to the Autumn Budget in October of last year, the average mortgage rate for a two-year fixed-rate buy-to-let mortgage (75% LTV) had been falling, down from 4.83% in March of last year to 4.22% in October.

In the month that followed, this increased to 4.28% before reducing to 4.26% in December, albeit still marginally higher than the October figure.

However, the average rate of 4.26% in December last year was still considerably lower than the previous year’s 5.40% (December 2023).

In fact, Octane’s analysis shows that, on average, in 2024, the average buy-to-let mortgage rate was 4.53%. This is compared to an average rate of 5.47% seen over the previous year (2023).

The swap rate market has driven this reduction in buy-to-let mortgage rates.

Throughout 2024, the average one-year swap rate was 4.81%, down from 5.25% in 2023. At the same time, the average five-year swap rate was 4.16%, down from 4.52% in 2023.

However, with soaring gilt yields, mortgage rates are expected to climb during the initial stages of 2025, although the wider expectation is that the increase in gilt yields currently being seen should subside if the Bank of England decides to cut interest rates again.

Jonathan Samuels, Octane Capital CEO, commented, “Since the Budget, we’ve seen swap rates creep up, and this has inevitably caused buy-to-let mortgage rates to follow suit.

This is because many lenders in this market rely on swaps to lend at fixed rates, and the funding lines are priced in relation to swap prices. So, while the base rate has not moved, the funding cost to lenders has gone up.

The good news is that both swap rates and buy-to-let mortgage rates remain far more palatable than they were a year ago. At present, many lenders are opting to take the hit on the margin in hopes of a future reduction. As a result, there remains a good level of opportunity for buy-to-let investors to secure a mortgage at a lower rate than they would have a year or so ago.

However, the longer this goes on, the more likely they are to pass on this increased cost to borrowers via higher mortgage rates.

Does this mean that the base rate will go up? Not necessarily. If mortgage rates increase, it will push up inflation, but it will also weaken the economy. The Bank of England may be reluctant to put more stress on the economy by hiking rates, especially as growth is so limited, as this could unintentionally push the UK into a recession.

So, if base rates are held or even come down, lenders with variable rates linked to the base rate will likely look even cheaper compared to those fixed rates priced off an increased swap rate, and this is where investors should look when assessing their options for the year ahead.”