Average buy-to-let (BTL) mortgage rates have fallen to the lowest levels since September 2022, but remain well above 5%.
While falling rates are good news for landlords, those due to remortgage will face higher repayments, and investors might still think twice before expanding their portfolios.
Here, Which? explains what’s happening to BTL rates and reveals the cheapest deals currently on the market.
What’s happening to buy-to-let mortgages?
Buy-to-let mortgage rates have fallen to the lowest levels since September 2022, when the cost of mortgages soared after the government’s mini-Budget.
A period of high inflation resulted in a series of hikes to the Bank of England’s base rate, culminating in average BTL rates peaking at 6.79% in August 2023.
The average fixed BTL rate is now 5.45%. This is still much higher than the 4.38% recorded two years ago and the 3.16% recorded five years ago.
This means landlords remortgaging at the end of a two or five-year deal will see their repayments go up.
Will buy-to-let rates get cheaper?
With the base rate having now fallen from 5.25% to 5%, there are hopes that buy-to-let mortgage rates will follow suit.
The base rate cut, while small, could increase competition between lenders, resulting in better choice and cheaper deals for borrowers. It’s also a strong signal that rates are finally going in the right direction.
However, any significant drops seem likely in the short term. On announcing the base rate cut, the Bank of England’s Monetary Policy Committee urged caution about the dangers of ‘cutting rates too much or too quickly’.
Best rates on buy-to-let mortgages
There are currently around 2,700 BTL mortgages on the market. Most are available to landlords with deposits of at least 25%, though some higher loan-to-value deals are available.
Looking at average rates gives us a general idea of what’s happening in the market, but when you’re taking out a mortgage you’ll want to get the cheapest deal you can.
The tables show the lowest initial rates currently available on two and five-year fixed-rate buy-to-let mortgages.
As you can see, these rates are significantly more attractive, but there are drawbacks. The cheapest deals here come with substantial up-front fees, which you’ll need to factor in when comparing overall costs.
For example, the lowest-rate 60% mortgage has a fee of 3% of the amount you borrow, so if you borrow £200,000, you’ll need to pay a fee of £6,000.
Fee-free BTL mortgages are uncommon, but some deals do come with lower up-front fees of around £999-£1,500.
Two-year fixes
| Loan-to-value | Lender | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | The Mortgage Works | 3.54% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 3.69% | 8.99% | 3% of the mortgage |
| 80% | Molo Finance | 4.45% | 7.94% | 4.5% of the mortgage |
Source: Moneyfacts. Rates correct as of 2 August 2024. Deals with up-front fees of more than 5% of the amount borrowed and ‘green’ deals aren’t included.
Five-year fixes
| Loan-to-value | Lender | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | The Mortgage Works | 3.94% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 3.99% | 8.99% | 3% of the mortgage |
| 80% | Accord Mortgages | 4.99% | 8.24% | £3,495 |
Source: Moneyfacts. Rates correct as of 2 August 2024. Deals with up-front fees of more than 5% of the amount borrowed and ‘green’ deals aren’t included.
Are landlords selling up or staying in the game?
Landlords have sold more properties than they’ve bought every year since 2016, according to data from the estate agent Hamptons.
The sell-off was sparked by changes to mortgage interest tax relief, which significantly cut profits for many buy-to-let investors. Indeed, data from Savills shows landlords profits hit their lowest levels since 2007 last year.
Landlords who are remaining in the market are increasingly using limited companies for their portfolio, with around 50,000 buy-to-let companies set up in 2023.
Landlords using company structures can offset 100% of their mortgage interest against their profits and pay corporation tax rather than income tax. However, mortgage rates for limited companies can be significantly more expensive.
What might happen with rental sector reforms?
The last few years have been a tumultuous time for the rented sector, and the future remains unclear on some key issues.
The Renters Reform Bill failed to pass through parliament before it was dissolved ahead of the general election.
The new Labour government has pledged to introduce its own Renters’ Rights Bill in England, which it says will ban Section 21 evictions and enable tenants to challenge rent increases. It could be some time before the plans come into law.
Landlords are also facing uncertainty over future energy reforms, after plans to make all rented properties achieve Energy Performance Certificate ratings of C were scrapped last year. The new government says it will introduce similar rules, but exactly how they’ll look and when they’ll come into force remains to be seen.
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
