Financial shock: Many landlords who own with a mortgage will be seeing their profits cut down by higher mortgage rates
What does it mean for landlords?
Many of the landlords who are now remortgaging had become accustomed to rock bottom rates.
‘If inflation continues to pose a challenge, we should expect bank rate to be higher for longer, which would in turn result in a period of higher mortgage rates.
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The average two-year fixed rate buy-to-let mortgage is currently 5.36 per cent, according to Moneyfacts. The average five-year fix is 5.48 per cent.
Howard Levy adds: ‘The bigger landlords seem to be sticking with five-year fixes, preferring to lock in for the longer term.
Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.
He says: ‘In general residential mortgage rates seem to have hit the floor and there isn’t any margin for them to lower.’
The case in favour of a tracker mortgage
To secure the cheapest deal, landlords will also typically need to be buying with at least a 40 per ent deposit or be remortgaging with at least 40 per cent equity in the property.
25% deposit mortgages
Santander has a two-year fixed rate at 4.84 per cent with a £49 fee at 60 per cent loan to value.
> Mortgage rates calculator
Howard Levy, director of buy-to-let lending at mortgage broker SPF Private Clients, says: ‘Many landlords who own in their own name are incorporating their portfolios, and others are selling up given the profits they were making are now losses due to tax changes.
The new normal: 46,449 companies were set up between January and September 2024
‘They do get the equivalent of pound cost averaging though, as rate expiries are coming up for these clients all the time, so if rates drop they book a five-year fix at that time for the next few properties for example.
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‘These works are positive from the market perspective as this means unused properties are then brought back in to housing stock, and if converting a house in to flats this increases housing stock too.’
HSBC has a five-year fixed rate at 4.31 per cent with £1,999 fee at 75 per cent loan to value.
‘I’ve had a few calls from people looking to build buy to let portfolios again, whether that be existing landlords or new to market landlords and that is encouraging.
Tax perks: As the gap between personal and corporate tax rates may widen further in the Budget, there has been a surge of landlords incorporating
It means on a £200,000 mortgage they would have factored in monthly mortgage costs of around £417 – not the £900 or so they are likely to face when remortgaging today.
Two-year fixed rate mortgages
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
While this can vary from lender to lender, the average lower-rate taxpayer will need the rental income to cover the mortgage payment by 125 per cent. Higher-rate taxpayers typically see this rise to 145 per cent.
On a £200,000 interest only five-year fixed rate mortgage, that’s the difference between having to pay £1,137 a month when fixing in July compared to £900 a month at the moment.
Santander has a two-year fixed rate at 5.1 per cent with £49 fees at 75 per cent loan to value.
Mortgage lenders need the rental income to cover the mortgage payment, plus a margin to cover other costs.
Best two-year tracker without early repayment charges
On a £200,000 mortgage the average company landlord could therefore expect to pay £920 a month over two years or £945 a month over five years.
Cheapest limited company remortgage options
Again, this is based on a property value of £200,000 and is the cheapest remortgage deals overall based on rates and fees.
Five-year fixed rate mortgages
40% deposit
Please note, these rates were the best deals sourced as of 10 January 2025.
‘We are seeing many clients opt for a two-year fix for a product transfer with the view that in two years’ time rates will be lower so they can remortgage onto a more palatable rate.’
If you’re ready to find your next mortgage, why not use This is Money and L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.
They are banking on the expectation that once inflation subsides, the base rate – and then mortgage rates – will come down, allowing them to fix at a cheaper rate.
Many of those opting for a two-year fix will be doing so because they think interest rates will fall over the next couple of years.
Best mortgage rates and how to find them
What are the best buy-to-let rates?
Below, we highlight some of the best deals available to buy-to-let landlords.
It’s also worth pointing out that at present, tracker rates tend to be more expensive than fixed rates.
At present, markets are pricing in three rate cuts in 2025. If forecasts are correct, this could mean base rate will fall from 4.75 per cent to to 4 per cent by the end of 2025.
What if I need to remortgage?
Between January and September last year, 46,449 buy-to-let companies were set up, a rise of 23 per cent on the same period the previous year.
Two-year fixed rate mortgages
Expert: Howard Levy, director of buy-to-let lending at mortgage broker SPF Private Clients
What if I am buying a home?
How to assess where mortgage rates are heading?
Nobody wants to lock into a 5.5 per cent five-year fix in 2025 only to find they could have remortgaged onto a 3 per cent rate in 2027 if they had opted for a two-year fix instead.
Chris Sykes says: ‘I’d say the vast majority are forced onto a five year fixes in order to achieve the level of borrowing they need. Two year deals are basically not even an option for most landlords.’
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Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone.
The case in favour of fixing for two years
HSBC has a two-year fixed product at 4.79 per cent with £0 fees at 60 per cent loan to value.
Both the average two-year fixed rate buy-to-let mortgage and five-year fixed rate are currently hovering around 5.4 per cent, according to Moneyfacts.
This means fixed mortgage rates will only fall significantly if future interest rate expectations fall further over the coming months and years.
How cheap are buy-to-let mortgage rates?
Many landlords who own with a mortgage will be seeing their profits decimated by higher mortgage rates, having been lulled into a false sense of security by the ultra-cheap finance available in recent years.
> Find the right mortgage for you
On the flip side, if the base rate stays the same or even rises this year, it could end up becoming an expensive gamble.
If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.
Lenders tend to price their fixed-rate mortgages based on future market expectations for the Bank of England’s base rate.
Nicholas Mendes of mortgage broker John Charcol says: ‘Predicting the trajectory of mortgage rates over the coming years is still risky business and while it is important to understand the market and make a balanced view on future rate movement it should not influence your decision if your someone who requires a longer period of stability. Getting the right advice is key.
Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.
You can check best buy tables and the best mortgage rates for your circumstances with our mortgage finder powered by London & Country – and figure out what you’ll actually be paying by using our new and improved mortgage calculator.
Quick mortgage finder links with This is Money’s partner L&C
There are roughly two million buy-to-let properties that have a mortgage attached, according to the trade association for the banking and financial services sector, UK Finance.
How lenders calculate affordability for buy-to-let mortgages
Affordability for a buy-to-let mortgage is usually assessed by looking at something called the interest coverage ratio (ICR). This is the ratio of gross rental income to mortgage interest payments.
Two-year fixed rate mortgages
Add that to the cost of periods where the property is empty, repairs, maintenance, letting agent fees, compliance checks, insurance and service charges and it shows how reliant many landlords will be on rents rising in order to turn a profit.
The lowest five-year fixed rate deal the market is currently 3.49 per cent while the lowest two-year fix is 2.69 per cent, albeit both deals come with very hefty fees.
25% deposit
Should you fix or take a tracker?
The case in favour of fixing for five years
Santander has a five-year fixed rate at 4.4 per cent with 1,798 fee at 75 per cent loan to value.
Many have seen their mortgage costs spiral meaning they by and large will be hoping for falling interest rates just as much as homeowners and first-time buyers.
Howard Levy adds: ‘The margin on tracker rates seems to have remained relatively high compared to the pricing of five-year fixes so they are proving less popular.
Someone who purchased five years ago will have enjoyed an average fixed rate of around 2.5 per cent.
BM Solutions has a two-year tracker rate at 5.28 per cent with £1,499 fees at 75 per cent loan to value. This is base rate plus 0.53 per cent.
For example, someone could be paying base rate plus 0.75 per cent on top with a tracker. With the base rate at 4.75 per cent, they’d pay 5.5 per cent at present.
In terms of rates, Chris Sykes thinks that there rates are unlikely to change much for the foreseeable future.
This is because lenders tend to impose more generous affordability tests.
We look at what landlords need to consider when taking a new mortgage, and list some of the best deals available. Both for those who own in their own name and for those who own via a limited company.
State Bank of India has a five-year fixed rate at 4.94 per cent with a 2 per cent fee at 60 per cent loan to value. This is for green energy efficient homes.
> Find the right mortgage for you
How to find a new mortgage
Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.
This is Money and L&C’s mortgage calculator can let you compare deals to see which ones suit your home’s value and level of deposit.
How to compare mortgage costs
