Mortgage rates: the issue you must not ignore

Rental values are looking rosy and tenant demand remains high but some dark clouds persist on the horizon. As well as the Renters’ Rights Bill, mortgage rates indicate stormy weather ahead.

Mortgage rates are critical in the profitability equation and rate volatility threatens the buy-to-let viability for millions of landlords. In the English Private Landlord Survey 2021, more than half (57%) of landlords had a buy-to-let mortgage. The date of the survey is important as it reflects a time when mortgage rates were irresistibly affordable.

In fact, the Bank of England’s Money & Credit report from July 2021 showed the actual interest rate paid on newly drawn mortgages was 1.83%, while the rate on outstanding stock mortgages was 2.05%.

The date also means borrowers who took out five-year fixed loans in 2021 when rates were rock-bottom will soon find themselves facing a completely different lending market. For many, the amount of rent collected will fail to cover outgoings, especially if even the best remortgage deals see repayments double.

For a brief period it looked as if mortgage rates were on their way down but a shock rise in inflation to 3% in January 2025 prompted concern. The headline that stood out was ‘sub-4% mortgage rates may be the first to go following unexpected inflation jump.’

Cheaper deals are expected to vanish after reappearing just weeks before – bad news for landlords who need to remortgage and property investors hoping to expand portfolios. Although rents are high, they are plateauing and sit among increasing running costs, such as ground rent, service charges, insurances and maintenance. Maybe now the figures don’t add up.

Landlords looking to improve cash flow are already being thwarted, as revealed by the National Residential Landlords Association. A report released by the organisation in December 2024 highlighted how landlords hoping to ride out high mortgage rates by taking 1- and 2-year fixed rate mortgage deals are finding rates unbearably high. Instead, they are being forced towards 5-year fixed deals with lower rates that just about keep them in profit.

The rate imbalance is largely to do with buy-to-let stress tests. These are carried out during new mortgages and when remortgaging, and they determine if a potential borrower can afford mortgage repayments. In the current climates, there is more leniency attached to longer-term deals, with the lower repayments stacking up more favourable with lenders.

Longer fixed deals, however, and not suitable for the increasing number of landlords planning to exit the buy-to-let market in the short- to medium-term. Although 5-year fixed-rate deals are resulting in cheaper monthly repayments, they are notoriously costly to get out of early.

Landlords on 5-year fixed deals who need to sell up or remortgage to a better rate will likely face early repayment charges and/or other penalties that often run into thousands of pounds. Is it a false economy to fix into longer products at a lower rate? Potentially.

The buy-to-let mortgage market feels like a lose-lose situation at present. The figures are alarming. Towards the end of 2024, UK Finance - the lenders’ trade body – announced there had been a 50% rise in buy-to-let mortgages in arrears. Additionally, there were 710 buy-to-let mortgage possessions in Q4 2024 – an increase of 33.8% compared to the same quarter in 2023.

If higher mortgage repayments are sucking all the profit out of your buy-to-let, we’d be happy to talk through your options and explore the possibility of cashing in. Our free, no obligation valuations are frequently enough to clear your mortgage and allow you to exit the buy-to-let market. No need to evict your tenants – we buy properties with sitting tenants, allowing you to act quickly.

What’s more, we can complete a purchase before your next mortgage repayment is taken out of your account, with exchange and completion possible in just 7 days! Get in touch to start a sale.