Interest rates in the UK are set to drop sharply through 2025, with major lenders and international economists forecasting a return to sub-3% borrowing costs—potentially transforming the buy-to-let landscape for landlords. According to analysts at Morgan Stanley, the Bank of England is expected to make a series of cuts that could bring the base rate down to 3.25% by the end of the year, and possibly as low as 2% by mid-2026.
This anticipated shift marks a stark reversal from the sharp rate rises of recent years and could significantly ease mortgage burdens on landlords, reigniting investor appetite in a cooling property market. “The Bank may make 0.5% cuts in June or August,” said Bruna Skarica, Morgan Stanley’s Chief UK Economist, who also expects the central bank to drop its usual cautionary language in favour of bolder action.
Cheaper borrowing could revive landlord appetite for expansion
The first cut is expected as soon as next week, with Morgan Stanley predicting a reduction from 4.5% to 4.25%, followed by a series of measured steps downward. “We forecast a drop to 3.25% by year-end and down to 2.75% in the first half of 2026,” Skarica said, citing weak growth prospects caused by global economic pressures—including ongoing US protectionist trade measures.
UK inflation’s unexpected dip to 2.8% in March has only strengthened the case for reductions. With the Monetary Policy Committee (MPC) voting 8–1 in favour of holding rates steady last month, pressure is mounting for action—especially with April’s inflation data, due on 21 May, expected to show further softening.
“The Bank of England is targeting 2% inflation and is likely to respond quickly if progress continues,” Skarica added. For landlords, this environment creates a rare window of opportunity. Lower rates would slash the cost of borrowing, improve net yields, and potentially make remortgaging or expanding portfolios far more attractive than at any point since October 2022.
Main lenders slash mortgage rates as competition heats up
Lenders have already started responding. Barclays, HSBC, NatWest, Halifax, Nationwide and Santander have all launched sub-4% fixed-rate mortgage deals in recent days, with Barclays reportedly expecting base rates to fall to 3.5% by September. For landlords, especially those on variable rates or nearing remortgage deadlines, this is a welcome—and overdue—development.
“It’s not just about cheaper repayments—it’s about confidence,” said one London-based landlord with a five-property portfolio. “If the Bank signals that the cost of borrowing is genuinely coming down and staying down, it allows people like me to plan again. We’ve been treading water since late 2022.”
This echoes the last dramatic cycle of rate reductions during the 2008 financial crash, when the base rate plummeted from 4.5% in October 2008 to just 0.5% in March 2009. While no one expects quite such extreme action now, the trajectory appears similar, and investors are watching closely.
If forecasts prove correct, 2025 could be the year UK landlords regain some financial breathing room after a long stretch of political, regulatory, and economic pressure.
