Buy-to-let (BTL) mortgage rates have seen a slight increase since the Autumn Budget, driven by higher swap rates and soaring gilt yields. However, UK landlords are still in a better position compared to the previous year, with rates significantly lower than those seen in 2023.
Specialist lender Octane Capital’s latest analysis underscores the evolving lending landscape, showing that while the average two-year fixed-rate BTL mortgage (75% LTV) rose from 4.22% in October to 4.26% in December, this is still a notable improvement from the 5.40% average in December 2023.
A softer market driven by swap rate declines
The reduction in BTL mortgage rates throughout 2024 has largely been attributed to falling swap rates. The average one-year swap rate in 2024 was 4.81%, down from 5.25% in 2023. Similarly, the five-year swap rate dropped to 4.16%, compared to 4.52% the previous year.
Jonathan Samuels, CEO of Octane Capital, explains the dynamic: “Many lenders in this market rely on swaps to lend at fixed rates, and the funding lines are priced in relation to swap prices. While the base rate hasn’t changed, the cost to lenders has risen slightly due to increasing swap rates.”
Despite this, Samuels highlights that the current mortgage environment remains favourable for landlords. “Both swap rates and BTL mortgage rates are far more palatable than they were a year ago. Many lenders are even choosing to absorb the rising costs in hopes of future rate reductions, presenting an excellent opportunity for investors,” he said.
The road ahead for landlords
As gilt yields remain high, further increases in BTL mortgage rates are anticipated during the early months of 2025. However, there’s optimism that these pressures will ease if the Bank of England decides to lower the base rate.
Samuels notes, “If the Bank opts to hold or reduce base rates, lenders offering variable rates tied to the base rate will become more competitive than fixed-rate products priced off higher swap rates. This could create unique opportunities for landlords exploring their financing options.”
Landlords should also weigh the potential economic risks tied to rate increases. “Higher mortgage rates could push inflation up but weaken the economy further, a scenario the Bank of England may want to avoid to prevent recession,” Samuels added.
