While buy-to-let (BTL) mortgage rates have crept up since the Autumn Budget in October last year, Octane Capital reveals they remain “considerably lower” on an annual basis.
Octane Capital analysis shows that in the run up to last year’s Autumn Budget, the average mortgage rate for a two-year fixed rate BTL mortgage at 75% loan-to-value (LTV) had reduced from 4.83% in March to 4.22% in October.
The month that followed the Budget, rates went up to 4.28%, before reducing to 4.26% in December.
While rates have edged up, Octane says the average rate in December was much lower than December 2023’s figure when it stood at 5.40%.
The average BTL mortgage rate in 2024 was 4.53%, compared to an average rate of 5.47% seen over the course of 2023.
Octane explains that the reduction in BTL rates has been driven by the swap rate market.
Throughout 2024, the average one year swap rate sat at 4.81%, down from 5.25% in 2023.
At the same time, the average five year swap rate came in at 4.16%, down from 4.52% in 2023.
However, with soaring gilt yields, mortgage rates are expected to climb during the initial stages of 2025. But Octane states that the wider expectation is that the increase in gilt yields currently being seen should subside if the Bank of England decides to cut interest rates again.
Octane Capital chief executive officer Jonathan Samuels says: “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.”
“Does this mean that the base rate will go up? Not necessarily. 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.”
