Following Chancellor Rachel Reeves first budget in October 2024, average two-year fixed rate buy-to-let mortgages at 75% loan-to-value increased from 4.22% to 4.28% in a month. They then dipped slightly to 4.26% in December, according to analysis by Octane Capital.
However, with the same mortgage bearing average rates of 5.40% in December 2023, landlords are still better off than they were a year earlier, according to Octane.
It said, on average in 2024, the typical buy-to-let mortgage rate was 4.53%. This is compared to an average rate of 5.47% seen over the course of 2023.
This reduction, Octane Capital said, had been driven by the swap rate market. And now, with soaring gilt yields, it is thought mortgage rates will climb further in the early months of 2025.
Jonathan Samuels, CEO at Octane Capital, said: “Since the Budget, we’ve seen swap rates creep up and this has inevitably caused buy-to-let mortgage rates to follow suit.
“This is due to the fact that many lenders in this market rely on swaps to lend at fixed rates, and the funding lines are priced in relation to swap prices. So, whilst the base rate has not moved, the funding cost to lenders has gone up.
“The good news is that both swap rates and buy-to-let mortgage rates remain far more palatable than they were a year ago and so, at present, many lenders are opting to take the hit on the margin in hopes of a future reduction.
“As a result, there remains a good level of opportunity for buy-to-let investors to secure a mortgage at a lower rate than they would have a year or so ago.
“However, the longer this goes on, the more likely they are to pass on this increased cost to borrowers via higher mortgage rates.”
Indeed, in the last week, data from another source shows the average two-year buy-to-let mortgage rate has increased from 5.38% to 5.43%. This data from Moneyfacts refers to all loan-to-value tiers as opposed to just 75% loans, which Octane used in its analysis.
Meanwhile the typical five-year fix in the buy-to-let market has risen from 5.47% on Tuesday 14 January to 5.56% today, according to Moneyfacts.
With lenders pricing in increases, does this mean interest rates might increase?
Samuels said ‘not necessarily’. He added: “If mortgage rates increase it will push up inflation, but it will also weaken the economy. The Bank of England may be reluctant to put more stress into the economy by hiking rates, especially as growth is so limited, as this could actually push the UK into a recession unintentionally.
“So, if base rates are held, or even come down, lenders with variable rates linked to the base rate will likely look even cheaper compared to those fixed rates being priced off an increased swap rate and this is where investors should look when assessing their options for the year ahead.”
