Buy-to-let mortgage costs have risen following Labour’s controversial Autumn Budget, with interest-only mortgages seeing an increase of 5.9%, while full repayment mortgages are up by 2.5%. These changes come despite the Bank of England cutting the base rate to 4.75% earlier in November, highlighting growing market unease around the government’s economic policies.
Mortgage costs increase despite rate cuts
Specialist lender Octane Capital reported that the average monthly cost of a 75% LTV (loan-to-value) buy-to-let mortgage rose to £951 in November 2024 for full repayment deals, compared to £928 before the Budget. For interest-only arrangements, the cost has climbed from £470 to £498 per month.
This rise in rates appears to contradict the recent base rate reduction. Instead, it reflects shifts in swap rates, which influence borrowing costs. These have risen since Chancellor Rachel Reeves delivered the Autumn Budget on 30th October. Octane Capital CEO Jonathan Samuels explained, “The financial markets don’t seem convinced by the UK’s direction of travel, as higher swap rates have fuelled higher mortgage rates.”
The Budget itself raised eyebrows by introducing £40 billion in annual tax increases, including a significant hike in employers’ National Insurance contributions. For landlords, the most striking blow was the stamp duty surcharge rising from 3% to 5% in England and Northern Ireland.
Long-term costs remain lower than last year
Despite the recent increases, buy-to-let mortgage rates are still significantly cheaper than they were a year ago. Octane Capital’s analysis shows that the average monthly cost for a buy-to-let mortgage has fallen by 7% year-on-year, from £1,023 in November 2023 to £951 in November 2024.
Interest-only mortgages have seen an even steeper annual drop, down by 22.8%, from £645 to £498. This is despite house prices rising 3.7% over the same period, with the average property value increasing from £258,557 in November 2023 to £268,144 in November 2024.
Samuels acknowledged this silver lining: “One positive is—despite this blip—monthly mortgage payments are still far lower than a year ago, and that could still represent the long-term trend as we move into 2025.”
Challenges mount for landlords
For buy-to-let landlords, the combination of rising mortgage rates and increased stamp duty presents significant challenges, particularly for those new to the market. Samuels added, “Becoming a buy-to-let landlord is becoming more challenging, especially for newcomers to the market. The hope is that sentiment changes in the months ahead, which would allow the Bank to continue cutting the base rate and for buy-to-let rates to fall once again.”
However, broader economic factors are adding to the uncertainty. The Consumer Price Index (CPI) inflation rate rose from 1.7% in September to 2.3% in October, limiting the Bank of England’s ability to make further cuts to the base rate in the near future.
