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What's happening to buy-to-let mortgage rates?
Find out the cheapest mortgage deals on offer for landlords
Buy-to-let (BTL) mortgage rates have fallen since the start of 2024, but remain considerably higher than a couple of years ago.
This means landlords due to remortgage will face much higher repayments, and investors might 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?
Earlier this year, buy-to-let mortgage rates fell 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 buy-to-let rates peaking at 6.79% in August 2023.
After dropping to 5.5% this February, rates have been rising very slightly over the last few months, averaging 5.55% at the start of July.
This is much higher than the 4.31% recorded two years ago, meaning landlords remortgaging at the end of a two-year deal will see their repayments go up.
The graph below shows what's happened to fixed-rate BTL mortgage rates over the past year.
- Find out more: discover how rate changes could affect you with our mortgage repayment calculator
Will buy-to-let rates get cheaper?
This will be influenced by what happens to the base rate.
The base rate has stabilised recently, though hopes of a cut have so far failed to materialise.
With inflation recently reaching the Bank of England's target of 2%, all eyes will be on the next announcement on 1 August.
A fall would likely result in lenders reducing their prices further, but any significant drops appear unlikely.
- Find out more: loan to value (LTV) calculator - calculate the LTV percentage you'll need for your mortgage
Best rates on buy-to-let mortgages
There are currently around 2,500 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 | 3.79% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 3.89% | 8.99% | 3% of the mortgage |
| 80% | Molo Finance | 4.65% | 7.94% | 4.5% of the mortgage |
Source: Moneyfacts. Rates correct as of 1 July 2024. Deals with up-front fees of more than 5% of the amount borrowed aren't included.
Five-year fixes
| Loan-to-value | Lender | Initial rate | Revert rate | Fees |
|---|---|---|---|---|
| 60% | The Mortgage Works | 4.14% | 8.49% | 3% of the mortgage |
| 75% | The Mortgage Works | 4.24% | 8.99% | 3% of the mortgage |
| 80% | Accord Mortgages | 4.99% | 6.94% | £3,495 |
Source: Moneyfacts. Rates correct as of 1 July 2024. Deals with up-front fees of more than 5% of the amount borrowed 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.
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Listen nowThings landlords need to know this year
The last few years have been a tumultuous time for the rented sector, and the remainder of 2024 could bring further uncertainty.
The Renters Reform Bill failed to pass through parliament before it was dissolved ahead of the general election. This means that what happens next with buy-to-let reforms, including Section 21 , will be decided by the next government.
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.
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