What Effect Will the Interest Rate Have on Buy-to-Let Mortgages?

As landlords, you haven’t had it easy of late. High interest rates and inflation in the last few years have led to increased costs in everything from the maintenance of properties to their management.

Mortgage rates for buy-to-let properties have also risen, leading to higher costs for those of you remortgaging after lower fixed-rate deals as well as increased costs for those investing in the market for the first time or expanding rental portfolios. The additional mortgage payment costs have had to be paid from a rental income that, despite also rising due to increased demand, is ultimately constrained by tenant affordability.

But with two base rate cuts by the Bank of England already in 2024 and hope for further in 2025 there is renewed confidence that mortgage rates on buy-to-let mortgages will begin to fall, allowing landlords to invest once more.

Base rate cuts

In August the base rate was cut from 5.25%, where it had stayed since 2020, to 5%. In November, the second cut of 2024 was revealed when the Monetary Policy Committee voted by a majority of 8-1 to reduce the base rate by a further 0.25 percentage points to 4.75%. There had been hopes of a third cut before the end of the year at December’s meeting of the MPC on the 19^th but that is now looking more unlikely.

However, in early December the Bank of England governor Andrew Bailey said that he anticipates four further interest rate cuts in 2025, which could see the base rate hit 3.75% by this time next year.

The impact on buy-to-let

So how have the existing interest rate cuts impacted BTL mortgages? In October, average buy-to-let mortgage rates had fallen to their lowest levels since September 2022, although they still remained above 5%. At this point the average rate was 5.25%, lower than the 5.96% peak of two years before but still above the 3.15% average of five years ago. Since then rates, as with the rest of the mortgage market, have fluctuated somewhat.

Bailey’s confidence that four further reductions to the base rate are likely in 2025 may help to settle the market, especially since it follows less confident remarks he had made previously when he said cuts wouldn’t be drastic or fast. It brings hope that buy-to-let rates, which are always traditionally higher than standard residential mortgage rates, will fall further next year.

This will be welcome news since you are also likely to be juggling other increased expenses too. The Autumn budget saw stamp duty land tax for buy-to-lets increase to 5% with immediate effect at the end of October. Further responsibilities to be introduced as part of the Renters’ Rights Bill could also cost you more, even though the changes are designed to improve standards for tenants and landlords alike overall.

As a landlord there are challenges ahead but as base rate cuts continue the pressure should ease as we move into 2025 and that will be welcome news for anyone investing in the buy-to-let market.

If you're considering stepping into the realm of property investment and exploring the role of a landlord, expert guidance is a must. Our team at Phillip Mann is here to support you every step of the way. With a comprehensive suite of services tailored for landlords, including innovative options like our Advanced Rent Option, we're committed to helping you thrive in the rental market. Connect with us today to delve deeper into how we can assist you in navigating the new MEES targets and maximising your returns.