BTL mortgage rates rise but landlords still benefit – Octane

While buy to let mortgage rates have risen slightly following the Autumn Budget and despite soaring gilt yields, Octane Capital believes the lending landscape remains favourable for UK landlords.

Octane’s analysis found that the average two-year fixed-rate BTL mortgage rate (75% LTV) had been declining before the Autumn Budget in October 2024, reaching 4.22%.

This rate subsequently increased to 4.28% in November and then fell slightly to 4.26% in December, still marginally higher than the October figure.

However, the December 2024 rate of 4.26% was lower than the 5.40% recorded in December 2023.

Swap rates creep up

The firm’s chief executive, Jonathan Samuels, 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.”

He added: “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.”

Buy to let mortgage rate

Octane’s analysis reveals that the average buy to let mortgage rate in 2024 was 4.53%, compared to 5.47% in 2023.

This drop in BTL rates is attributed to the swap rate market.

The average one-year swap rate in 2024 was 4.81%, down from 5.25% in 2023, while the average five-year swap rate fell from 4.52% to 4.16% over the same period.

Mr Samuels said: “However, the longer this goes on, the more likely they are to pass on this increased cost to borrowers via higher mortgage rates.

“Does this mean that the base rate will go up? Not necessarily.”

Mortgage rates increase

He continued: “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.”

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