Buy-to-let landlords are facing increasing challenges with higher interest rates, rising costs, and a less favourable tax regime. These factors are making it increasingly difficult to manage property investments profitably. Many landlords have seen their mortgage repayments surge, aligning their hopes for falling interest rates with those of homeowners and first-time buyers.

According to UK Finance, the trade association for banking and financial services, there are approximately two million buy-to-let properties with mortgages. The current average rate for a two-year fixed buy-to-let mortgage stands at 5.34%, while a five-year fixed rate averages slightly higher at 5.45%, as reported by Moneyfacts. These rates reflect the significant rise in borrowing costs over recent years.

For landlords seeking lower rates, there are options available. The cheapest five-year fixed rate deal on the market is 3.85%, while the lowest two-year fixed rate is 3.34%. However, these deals often come with substantial fees, which could impact their overall value depending on the landlord’s financial situation and goals.

Deciding on the right mortgage requires careful consideration. Factors such as the type of ownership—whether the property is held personally or through a limited company—can influence the options available and the associated costs. Additionally, landlords need to weigh the benefits of fixed rates for stability against the potential risks and rewards of variable tracker rates.

In this article, we explore the key factors landlords should consider when remortgaging and provide a roundup of some of the best deals currently on the market. Whether you own properties in your name or through a limited company, this guide aims to help you navigate the buy-to-let mortgage landscape effectively.

How cheap are buy-to-let mortgage rates? 

Many landlords with mortgaged buy-to-let properties are facing a significant squeeze on their profits as rising interest rates take their toll. After years of enjoying the benefits of ultra-low borrowing costs, the rapid shift in the financial landscape has left many unprepared for the mounting expenses that now threaten their bottom line. The era of cheap finance lulled many into a false sense of security, but the current environment demands careful financial management and strategic planning to navigate successfully.

A considerable number of landlords rely on interest-only mortgages to maximise cash flow. While this approach has been effective during periods of low rates, it leaves them particularly exposed to increases. Unlike repayment mortgages, where rising rates only impact a portion of the monthly payment, interest-only mortgages see the entire payment rise in line with the interest rate. This means that when rates double or triple, so do monthly payments, creating a substantial financial burden.

The latest figures from Moneyfacts reveal that the average two-year and five-year fixed rate buy-to-let mortgages are hovering around 5.4%. For landlords requiring a £200,000 interest-only mortgage, this translates to a monthly payment of £901. This figure does not include arrangement fees, which can add even more to the overall cost of borrowing. Landlords renewing their deals or entering the market for the first time are likely to feel the strain of these higher costs.

In addition to mortgage payments, landlords must contend with a range of other expenses. These include the costs of repairs, maintenance, and periods when their properties may sit vacant without generating rental income. Letting agent fees, compliance checks, property insurance, and service charges further erode profits. For those in blocks of flats or properties with communal areas, service charges can represent a significant and often unpredictable cost.

The cumulative effect of these expenses highlights how heavily landlords must rely on rental income to stay profitable. In many cases, landlords will be counting on rents rising in tandem with their costs. However, increased rental prices could lead to affordability issues for tenants, further complicating the situation for landlords. In this challenging market, landlords must weigh their options carefully, plan for unforeseen expenses, and seek out the best mortgage deals to minimise their outgoings.

What about limited company mortgage rates? 

A growing number of landlords are choosing to set up limited companies to purchase buy-to-let properties, aiming to reduce the tax burden on their investments. In the first nine months of this year, 46,449 buy-to-let companies were established—a 23% increase compared to the same period last year. This trend, highlighted by property firm Hamptons through analysis of Companies House data, reflects a shift in how landlords are managing their property portfolios.

Owning property through a limited company, a process known as “incorporating,” offers a different tax structure compared to holding property in one’s personal name. While this strategy provides tax advantages, it also comes with higher costs. For instance, average mortgage rates for limited companies tend to be slightly higher and often include larger product fees.

According to Moneyfacts, the average two-year fixed rate mortgage for limited companies stands at 5.52%, while the five-year fixed rate is 5.67%. For a £200,000 mortgage, this equates to monthly payments of £920 for a two-year fix and £945 for a five-year fix. Although these rates may come with higher upfront fees, they allow limited company landlords to fully deduct their mortgage interest costs from their tax bills—a significant advantage over personal ownership.

Howard Levy, director of buy-to-let lending at SPF Private Clients, notes that many landlords are opting to incorporate their portfolios in response to these benefits. However, some are also choosing to sell their properties altogether, as rising costs and tax changes have turned previously profitable investments into financial losses.

This shift highlights the evolving landscape for landlords, who must carefully weigh the costs and benefits of incorporation against their long-term investment goals.

Many landlords who fixed their buy-to-let mortgages three to five years ago are now approaching the end of their terms, with many deals set for review within the next 12 to 24 months. The key factor influencing their decisions will likely be the state of interest rates at the time—or more crucially, four to six months before their fixed rates expire.

In a significant development, Metro Bank entered the limited company buy-to-let market in July. Previously, this space was primarily dominated by specialist buy-to-let lenders. However, in recent years, smaller building societies such as Leeds, Leek, Family, Mansfield, and Nottingham have started offering products tailored for limited companies.

Chris Sykes, technical director at Private Finance, highlights this shift: “Metro Bank’s entry signals growing interest in the limited company market, and discussions suggest that more lenders, including high street banks, may soon join. This could lead to a more mainstream and accessible market over time.”

New entrants, including Metro Bank, are focusing on smaller landlords using limited companies for property purchases. Meanwhile, larger portfolio landlords—typically owning around ten or more buy-to-let properties—continue to rely on specialist lenders who offer products designed to meet their more complex needs. Specialist properties like Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs) still require bespoke lending solutions.

The holiday let market has also seen growth in acceptance among building societies. With recent tax changes affecting holiday lets, Sykes anticipates more lenders will extend limited company products to this segment as well.

On the topic of rates, Sykes believes there is potential for limited company mortgage rates to dip slightly. “While residential mortgage rates seem to have hit their lowest point with little room for further reductions, limited company buy-to-let products may still see some minor decreases. However, they carry a premium due to their complexity and the additional risks involved compared to standard residential deals,” he added.

As more lenders enter the market and competition increases, landlords operating through limited companies may benefit from a broader range of options and potentially more favourable rates in the near future.

What does it mean for landlords? 

Many landlords who are currently remortgaging had become accustomed to extremely low interest rates in the past. For instance, a landlord who purchased a property five years ago would have enjoyed an average five-year fixed rate of approximately 3.5%, according to Moneyfacts.

With a £200,000 mortgage, this would have meant monthly payments of around £584. However, those same landlords are now facing remortgage rates that are likely to see their monthly payments rise to £875.

That said, the situation is not as grim as it was in the summer of the previous year, as mortgage rates have decreased somewhat. In July, the average two-year fixed rate for buy-to-let mortgages peaked at 6.97%, while the average five-year fixed rate reached 6.82%.

For landlords on a £200,000 interest-only, five-year fixed-rate mortgage, this means they would have been paying £1,137 a month when fixing in July, compared to £875 a month now.

However, some landlords may still secure better-than-average rates, especially if they work with a whole-of-market mortgage broker. This, of course, will depend to a large extent on how much equity they have in their property.

How to assess where mortgage rates are heading? 

No one wants to lock into a 5.25% five-year fixed rate in 2024, only to realise they could have remortgaged onto a 3% rate in 2026 if they had opted for a two-year fix instead.

Currently, markets are pricing in one or two rate cuts in 2024. If these forecasts hold true, this could mean that the base rate will fall to either 4.75% or 4.5% by the end of the year.

Looking ahead, financial markets are projecting that the base rate could drop to around 4% by the end of next year, eventually settling at around 3.5% in the future.

However, these predictions vary widely. For instance, Santander forecasts that interest rates will fall to 3.75% by the end of next year, with the bank’s economists also believing that UK interest rates will remain between 3% and 4% for the foreseeable future.

On the other hand, Goldman Sachs has offered the most optimistic outlook, predicting that the base rate will fall as low as 2.75% by the end of 2025.

Lenders typically base their fixed-rate mortgages on the future market expectations for the Bank of England’s base rate. These expectations are reflected in swap rates – financial market rates that anticipate where interest rates will be in two or five years’ time, when fixed-rate mortgages lent today will expire.

As of 18 November, five-year swaps were priced at 3.99%, while two-year swaps stood at 4.22%. Historically, the lowest fixed-rate mortgages rarely go below the equivalent swap rates.

This suggests that fixed mortgage rates will only experience significant reductions if future interest rate expectations continue to fall in the coming months and years.

To find the best mortgage rates for your situation, you can check out the best buy tables and use our mortgage finder, powered by London & Country. This tool will also help you understand exactly what you’ll be paying by using our newly improved mortgage calculator.

“We are not expecting to see rates go much lower from where they are now,” says mortgage broker Chris Sykes. “Fixed rates are already pricing in where lenders are expecting rates to go. While we may see slight reductions over time, we’re not expecting anything dramatic.”

“Base rates are likely to come down, but slowly, with possibly two more reductions this year,” adds Howard Levy. “If this happens, two- and five-year swap rates should also decrease. However, it’s worth noting that even when the base rate comes down, lenders often anticipate this change in advance, so it doesn’t always mean that their rates will drop by the same amount.”

“As a result, the changes lenders make to their rates can be more or less than the reduction that the Bank of England makes.”

Should you fix or take a tracker? 

The Case in Favour of Fixing for Five Years

Five-year fixed-rate mortgages currently offer some of the most competitive deals. Having the certainty of knowing what your monthly payments will be for the next five years can be particularly appealing, especially considering the sharp rise in interest rates over the past two years.

Moreover, opting for a five-year fix rather than a two-year one can sometimes enable landlords to borrow more. Lenders often apply more generous affordability tests for longer-term deals, making it easier to secure larger loans.

Chris Sykes points out that “the vast majority are forced onto five-year fixes in order to achieve the level of borrowing they need. Two-year deals are basically not even an option for most landlords.”

Howard Levy adds that larger landlords tend to stick with five-year fixes, preferring the stability of locking in for the longer term. “They do get the equivalent of pound cost averaging,” he explains, “as rate expiries are coming up all the time for these clients. So, if rates drop, they book a five-year fix at that time for the next few properties.”

For landlords who own buy-to-let properties in their personal name, a five-year fix is typically stressed at a lower rate than a two-year fix. Given existing borrowing, higher rates, and interest cover ratios, it may not be possible to raise the required funds without fixing for five years in some cases. “Paying higher product fees, achieving higher rental incomes, or not being classified as a higher-rate taxpayer are also ways to boost maximum borrowing levels,” adds Levy.

The Case in Favour of Fixing for Two Years

Many landlords opting for a two-year fixed rate are doing so with the expectation that interest rates will fall over the next couple of years. They are betting on a future where, once inflation subsides, the base rate—and, subsequently, mortgage rates—will decrease, allowing them to secure a more affordable fixed rate.

Nicholas Mendes, from mortgage broker John Charcol, explains, “Predicting the trajectory of mortgage rates over the coming years is still risky business. While it’s important to understand the market and make a balanced view on future rate movements, it should not influence your decision if you’re someone who requires a longer period of stability. Getting the right advice is key.”

Mendes continues that if inflation continues to present challenges, the bank rate is likely to remain higher for longer, leading to higher mortgage rates. However, he believes that, given the current economic landscape, there will likely be a gradual reduction in mortgage rates over time.

Howard Levy of SPF Private Clients argues that many landlords avoid the stress testing associated with shorter fixes by sticking with their current lender when refinancing. He says, “Two-year fixed rates don’t usually fit stress tests on a remortgage, unless the loan-to-value is relatively low, but they would be available for a product transfer.”

Many clients are choosing two-year fixes for product transfers, anticipating that in two years’ time, rates will be lower, enabling them to remortgage onto a more favourable deal.

The Case in Favour of a Tracker Mortgage

For those who are confident that rates will fall faster and further than expected, a tracker mortgage may be an appealing option. Tracker mortgages follow the Bank of England’s base rate, plus or minus a set percentage.

For instance, if someone has a tracker mortgage at the base rate plus 0.75 per cent, with the base rate currently at 5 per cent, their rate would be 5.75 per cent. If the base rate were to drop to 4.5 per cent, their rate would fall to 5.25 per cent.

The key benefit of tracker deals is that they typically don’t come with early repayment charges. This means that if mortgage rates fall in the coming year, someone with a tracker deal could switch to a cheaper fixed deal whenever they choose.

However, the downside of a tracker mortgage is that if the base rate remains the same or increases, it could become an expensive gamble.

What are the best buy-to-let rates? 

Best Buy-to-Let Deals for Landlords

Below, we highlight some of the most competitive buy-to-let mortgage deals currently available for landlords. It’s important to note that buy-to-let mortgages often come with product fees, which can be as high as 10 per cent of the loan amount. The deals listed here offer the lowest overall annual costs when considering the initial rate, fees (including arrangement and valuation fees), and any cashback available.

This information is based on a property value of £200,000, and the mortgages listed are available for remortgage deals. For landlords looking to purchase properties, rates may vary slightly.

Please note that these rates were the best deals sourced as of 24 October 2024.

Cheapest Deals for Those Owning in Their Personal Name

40% Deposit Mortgages

• Five-Year Fixed Rate Mortgages
  • BM Solutions offers a five-year fixed rate at 4.29 per cent with 3 per cent fees, at 65 per cent loan to value.
  • Leeds Building Society provides a five-year fixed rate at 4.49 per cent with £0 fees, at 60 per cent loan to value.
• Two-Year Fixed Rate Mortgages
  • Santander offers a two-year fixed product at 4.8 per cent with £49 fees, at 60 per cent loan to value.
  • Leeds Building Society also offers a two-year fixed rate at 4.95 per cent with a 49 per cent fee, at 60 per cent loan to value.

25% Deposit Mortgages

• Five-Year Fixed Rate Mortgages
  • BM Solutions offers a five-year fixed rate at 3.95 per cent with a 3 per cent fee, at 75 per cent loan to value.
  • Leek Building Society has a five-year fixed rate at 4.42 per cent with a £1,394 fee, at 75 per cent loan to value.
• Two-Year Fixed Rate Mortgages
  • Santander offers a two-year fixed rate at 5.06 per cent with £49 fees, at 75 per cent loan to value.
  • HSBC provides a two-year fixed rate at 5.09 per cent with £0 fees, at 75 per cent loan to value.

Best Two-Year Tracker Without Early Repayment Charges

40% Deposit

• BM Solutions offers a two-year tracker at 5.18 per cent with £1,499 fees, at 65 per cent loan to value. This tracker is based on the base rate of 4.75 per cent plus 0.43 per cent.

25% Deposit

• BM Solutions offers a two-year tracker at 5.28 per cent with £1,499 fees, at 75 per cent loan to value. This tracker is based on the base rate plus 0.53 per cent.

Cheapest Limited Company Remortgage Options

These remortgage deals are the cheapest options overall for landlords purchasing through a limited company, based on rates and fees, with a property value of £200,000.

40% Deposit Mortgages

• Five-Year Fixed Rate Mortgages
  • The State Bank of India offers a five-year fixed rate at 4.94 per cent with a 2 per cent fee, at 60 per cent loan to value. This deal is available for green energy-efficient homes.
• Two-Year Fixed Rate Mortgages
  • Monmouthshire Building Society offers a two-year fixed product at 4.5 per cent with a 3 per cent product fee, at 60 per cent loan to value. This deal includes a £150 application fee and a valuation fee.

25% Deposit Mortgages

• Five-Year Fixed Rate Mortgages
  • The State Bank of India offers a five-year fixed rate for green energy-efficient homes at 4.99 per cent with a 2 per cent fee, at 75 per cent loan to value.
• Two-Year Fixed Rate Mortgages
  • Monmouthshire Building Society offers a two-year fixed rate at 4.5 per cent with a 3 per cent fee, at 75 per cent loan to value. This deal includes a £150 application fee and a valuation fee.

Download NOW 

4 Simple Steps To Becoming Wealthy Through Property

DOWNLOAD