Buy-to-let landlords are facing a particularly challenging environment right now, as higher interest rates, rising costs, and a less favourable tax regime put pressure on their investments. The surge in mortgage costs is a significant concern for many, with landlords now feeling the strain as they navigate the more expensive landscape. Just like homeowners and first-time buyers, landlords are hoping for a reduction in interest rates to ease the burden on their financial commitments.

UK Finance, the trade association for the banking and financial services sector, estimates that there are nearly two million buy-to-let properties with mortgages attached in the UK. This substantial number of buy-to-let homes highlights the significant role these properties play in the overall housing market and the need for landlords to carefully manage their mortgages to ensure profitability.

Currently, the average two-year fixed-rate buy-to-let mortgage stands at 5.06%, according to Moneyfacts, while a five-year fixed-rate deal averages slightly higher at 5.35%. These rates reflect the ongoing challenges faced by landlords who are locked into higher mortgage costs. However, the market does offer some more competitive deals. The lowest five-year fixed-rate deal on the market today is 3.81%, while the lowest two-year fixed-rate mortgage stands at an appealing 1.69%. It’s important to note, however, that the most competitive deals often come with significant fees, which can impact the overall cost of the loan.

When considering new mortgage options, landlords need to carefully weigh the pros and cons of the available deals. The decision to take a fixed-rate mortgage or opt for a tracker product will depend on several factors, including how long the landlord plans to hold the property, their financial situation, and their risk tolerance. Additionally, there are important considerations for landlords who own properties in their own name compared to those who own them through a limited company, as the financial and tax implications can vary considerably.

As the market continues to evolve, landlords must stay informed about the best mortgage deals and how they fit into their long-term investment strategy. We will explore some of the best buy-to-let mortgage deals currently available, helping landlords make more informed decisions and navigate this complex financial landscape effectively.

How cheap are buy-to-let mortgage rates? 

Many landlords who own properties with a mortgage are facing a sharp decline in their profits due to higher mortgage rates. After enjoying the benefits of ultra-low interest rates in recent years, many have now found themselves under financial strain. The shift in the market has left some landlords caught off guard, as they were lured into a false sense of security by the cheap finance available in the past.

Mortgaged buy-to-let investors often opt for interest-only mortgages to maintain higher cash flow. However, this strategy comes with risks. When mortgage rates double or triple, as they have recently, the monthly payments follow suit. This means landlords are now seeing significantly higher costs, which can strain their finances.

According to Moneyfacts, the average five-year fixed-rate buy-to-let mortgage is currently 5.35%. For a typical landlord requiring a £200,000 interest-only mortgage on a five-year fixed deal, the monthly mortgage payments would now amount to £891, excluding fees. This is a significant jump compared to previous years when rates were much lower.

On top of the increased mortgage costs, landlords must also consider additional expenses such as periods when the property is vacant, repair and maintenance costs, letting agent fees, compliance checks, insurance, and service charges. All of these factors combined highlight how reliant many landlords are on rent increases to maintain profitability in this challenging financial environment.

What about limited company mortgage rates? 

The number of companies holding buy-to-let property in the UK has surpassed 400,000, according to an analysis of Companies House data by Hamptons. This milestone follows a record-breaking 61,517 new buy-to-let limited companies set up in 2024, marking a 23% increase from the previous record set in 2023.

Holding property in a limited company, known as ‘incorporating,’ is an alternative to holding property in a personal name, with a distinct tax structure. Since February 2016, the number of buy-to-let companies has risen by 332%, increasing from 92,975 to 401,744. This surge means that Companies House now has more companies registered to hold buy-to-let properties than any other type of business.

For landlords who own property through a limited company, average rates are generally slightly higher, with larger product fees attached. The average two-year fixed-rate mortgage for a limited company is 5.53%, while the five-year fixed-rate average stands at 5.78%, according to Moneyfacts. Although these mortgages come with higher fees, the advantage is that limited company landlords can fully deduct their mortgage interest costs from their tax bill.

Howard Levy, director of buy-to-let lending at mortgage broker SPF Private Clients, explains that many landlords who own in their own name are incorporating their portfolios. Others are selling properties as their profits have turned into losses due to tax changes. Many landlords who fixed their mortgages three, four, or five years ago will soon face a review of their rates in the next 12 to 24 months, with interest rates playing a crucial role in the outcome.

In July last year, Metro Bank entered the limited company buy-to-let market, a sector traditionally dominated by specialist lenders. In recent years, smaller building societies such as Leeds, Leek, Family, Mansfield, and Nottingham have also started offering limited company products.

Chris Sykes, technical director at broker Private Finance, comments that with Metro Bank’s entry into this market, many more high street lenders are expected to follow suit. This move will likely make the market feel less specialised over time. Metro Bank and other new entrants will primarily target smaller landlords purchasing through a company, rather than large portfolio landlords who still require specialist lenders and higher rates.

Once a landlord owns around 10 buy-to-let properties, they usually need to work with more complex lenders. Specialist assets, such as Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs), also require specialised lenders. Holiday lets, which are becoming more widely accepted by building societies, will likely see more lenders offering limited company mortgages as tax changes continue to affect the sector.

What does it mean for landlords? 

Many landlords who are now remortgaging had become accustomed to rock-bottom rates. For instance, someone who purchased five years ago would have enjoyed an average fixed rate of around 2.5%. This would have meant monthly mortgage costs of approximately £417 for a £200,000 mortgage. Today, however, they are likely to face monthly payments closer to £891 when remortgaging.

That said, mortgage rates are lower than they were during the summer of the previous year, meaning the situation is not as dire as it once was. In July 2024, the average two-year fixed rate for buy-to-let mortgages peaked at 6.97%, while five-year fixes reached 6.82%. These figures were much higher than current rates, offering some relief to landlords.

Some landlords may also secure a better deal than the market average by using a whole-of-market mortgage broker to find cheaper rates. The ability to access these lower rates will, to some extent, depend on how much equity they have in their properties.

However, it’s important to note that many of the lowest buy-to-let mortgage rates come with staggeringly high fees. These fees can reach up to 10% of the total mortgage amount in some cases, which, on a £200,000 mortgage, would amount to £20,000. Therefore, landlords must carefully consider the overall cost of the mortgage, factoring in both the fees and the interest rate.

To secure the best deal, landlords will typically need to have at least a 40% deposit when purchasing or 40% equity when remortgaging. Chris Sykes, from the broker Private Finance, explains that the situation is much better for landlords now compared to last year. He notes, “Rates have somewhat settled in this market, giving landlords more confidence to transact. We may even see further reductions as the year progresses, particularly if base rate predictions materialise and decrease.”

Sykes adds that he has seen an increase in calls from landlords, both existing and new, looking to build buy-to-let portfolios again, which is encouraging. However, he notes that landlords may have to work harder to make their money. A lot of discussions are now focused on financing renovations, such as converting a house into flats or making a property habitable. These types of projects can be beneficial for the market as they help bring unused properties back into housing stock, which can increase overall housing availability.

How to assess where mortgage rates are heading? 

Nobody wants to lock into a 5.5% five-year fixed rate in 2025 only to find they could have remortgaged onto a 3% rate in 2027 if they had opted for a two-year fix instead. With interest rates fluctuating, many homeowners are weighing the risks and potential rewards of choosing a longer or shorter fixed rate.

At present, markets are pricing in three more rate cuts in 2025. If these forecasts are correct, this could mean the base rate will fall from 4.5% to 3.75% by the end of 2025. This potential reduction is prompting many to reconsider their mortgage options and decide whether they should opt for a longer or shorter term.

Looking further ahead, financial markets are forecasting that the base rate will eventually settle around 3.5%. However, predictions vary widely. Two major US banks have recently forecast that UK interest rates will fall further and faster than financial markets expect.

Morgan Stanley predicts that UK interest rates will fall to 3.5% by the end of this year, while Goldman Sachs has forecasted a drop to 3.25% by June next year. In contrast, economists at Capital Economics anticipate that interest rates will settle around 3.5%, whereas economists at Oxford Economics think they will reach approximately 2.5% in late 2027.

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

As of 14 April, five-year swaps were at 3.85%, while two-year swaps stood at 3.83%. This suggests that fixed mortgage rates will only see significant reductions if future interest rate expectations fall further over the coming months and years.

To explore the best buy tables and find the best mortgage rates suited to your circumstances, you can use our mortgage finder powered by London & Country. Additionally, our newly improved mortgage calculator will help you determine what your monthly payments might be.

Cheapest deals for those owning in their personal name

Here’s a breakdown of the mortgage options available for those looking for both standard and limited company remortgages.

40% Deposit Mortgages

For those considering five-year fixed rate mortgages, NatWest offers a competitive rate of 4.17% with a £1,054 fee for a 60% loan-to-value (LTV). Alternatively, BM Solutions provides a lower rate of 3.81% with a 3% fee at 65% LTV.

For two-year fixed rate mortgages, The Co-operative Bank has a deal at 4.52% with no fees at 65% LTV. Santander also offers a two-year fixed rate at 4.63% with £59 fees for 60% LTV.

25% Deposit Mortgages

For those with a 25% deposit, Virgin Money offers a five-year fixed rate mortgage at 3.93% with a 3% fee at 75% LTV. Similarly, BM Solutions offers the same rate and fee structure at 75% LTV for a five-year fixed deal.

When it comes to two-year fixed rate mortgages, The Co-operative Bank provides a deal at 4.74% with no fees at 75% LTV. Bank of Ireland also offers a two-year fixed rate at 4.64% with £495 fees at the same 75% LTV.

Best Two-Year Tracker Mortgages Without Early Repayment Charges

For those looking for tracker mortgages without early repayment charges, HSBC offers a two-year tracker at 5.59% with no fees at 60% LTV. This rate is base rate (4.5%) plus 1.09%.

For a 25% deposit, TSB provides a two-year tracker rate at 5.34% with a £1,004 fee at 75% LTV. This rate is base rate plus 0.84%.

Cheapest Limited Company Remortgage Options

For limited company remortgages, Paragon Bank provides the most competitive rates for 40% deposit five-year fixed mortgages. It offers a rate of 5.29% with a £150 booking fee, specifically for green mortgage products on properties with an EPC rating of A, B, or C. The next best rate is 5.34%.

For a two-year fixed rate, Paragon Bank also offers a green mortgage product at 5.49% with a £150 booking fee for 60% LTV, and the next best rate is 5.54%.

25% Deposit Mortgages for Limited Companies

For limited company remortgages with a 25% deposit, State Bank of India provides a five-year fixed rate mortgage at 4.84% with a 2% fee at 75% LTV, also available as a green mortgage product for properties with an EPC rating of A, B, or C.

Lastly, Leeds Building Society offers a two-year fixed rate mortgage at 5.69% with no fees at 75% LTV.

These options cover a range of LTVs, fixed and tracker rates, and also include green mortgage products for more sustainable investments. Be sure to weigh rates and fees carefully to find the most suitable mortgage for your needs.

Download NOW 

4 Simple Steps To Becoming Wealthy Through Property

DOWNLOAD