Mortgage interest rates for buy-to-let have risen slightly since the Autumn Budget, but remain much lower than a year earlier. What is expected to happen to rates in 2025?
Next Chancellor Rachel Reeve’s first budget in October 2024, average two-year buy-to-let fixed rate mortgages at 75% loan-to-value rose from 4.22% to 4.28% in a month. They then fell slightly to 4.26% in December, according to analysis from Octane Capital.
But now that the same mortgage rate had an average interest rate of 5.40% in December 2023, landlords are still better off than a year earlier, according to Octane.
According to the report, the average mortgage interest rate in 2024 averaged 4.53%. This is compared to an average rate of 5.47% over the course of 2023.
According to Octane Capital, this reduction was the result of the swap interest market. And now, with soaring government bond yields, mortgage rates are expected to rise further in the first months of 2025.
Jonathan Samuels, CEO of Octane Capital, said: “We have seen it since the Budget swap rates and this has inevitably led to buy-to-let mortgage rates following suit.
“This is due to the fact that many lenders in this market rely on swaps to lend at fixed interest rates, and the financing lines are priced relative to swap prices. So while the base rate hasn’t changed, financing costs for lenders have risen.
“The good news is that both swap rates and buy-to-let mortgage rates are still much more agreeable than a year ago, which is why many lenders are currently choosing to absorb margin pressure in the hope of a future reduction. .
“As a result, good opportunities remain for buy-to-let investors to secure a mortgage at a lower interest rate than about a year ago.
“However, the longer this continues, the more likely they will pass these higher costs on to borrowers through higher mortgage rates.”
Data from another source shows in the past week that the average mortgage rate over a two-year period has risen from 5.38% to 5.43%. This Moneyfacts data covers all loan-to-value levels, 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, January 14 to 5.56% today, according to Moneyfacts.
Does this mean interest rates could rise as lenders price in price increases?
Samuels said “not necessarily.” He added: “If mortgage rates rise, it will drive up inflation but also weaken the economy. The Bank of England may be reluctant to put further pressure on the economy by raising interest rates, especially since growth is so limited, as this could actually inadvertently push the UK into recession.
“So if the base rate is maintained or even falls, lenders with floating rates pegged to the base rate are likely to look even cheaper compared to the fixed rates priced at a higher swap rate, and this is what investors should look at when assessing their interest rates. options for the coming year.”