Buy-to-let mortgage lenders have been slashing rates in the wake of the Bank of England’s latest interest rate decision, with a more optimistic outlook for 2025.
From major banks to specialist lenders, there has been a rise in competition to put the best rates and products on the table over the past couple of weeks. Some are now offering sub-4% rates to borrowers, despite averages remaining above 5% on two-year and five-year deals.
Similar patterns are emerging in both the residential and the buy-to-let mortgage sectors, as more lenders refresh their deals. This week, Virgin Money and Molo Finance are two of the latest lenders to bring out cheaper products for landlords, including for specialist products such as houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs), investor-led and new-build properties.
For landlords and property investors, this is likely to restore more confidence for new investment in the year ahead, improving the affordability outlook.
Commenting on the latest mortgage rate movements, Simon Gammon, managing partner of Knight Frank Finance, said: “There is enough confidence that rates will be lower in three to six months that they can be more aggressive with their pricing. The big six lenders, which account for almost three-quarters of the UK market, have also gained extra confidence to lend against their deposit book, which means they are less reliant on the swap market.”
Strong expectations
Improving mortgage market conditions are expected to contribute towards a boost in the UK housing market this years, with wage growth and a more positive economic outlook also combining to push the sector forwards.
A recent report from Octane Capital predicted more improvements in buy-to-let mortgage affordability over the course of 2025, along with a downward trend in swap rates.
It found that the average five-year swap rate fell to 4.16% after the Bank of England base rate cut on 6th February, down from 4.31% in early January. The lender said average buy-to-let mortgage rates also fell from 4.53% in 2024 to 4.38% in January.
Jonathan Samuels, chief executive at Octane Capital, believes that current market indicators point towards “light on the horizon” for all borrowers, including buy-to-let property investors, with 2025 set to be a year of “far greater positivity” than 2024.
“Not only have we seen swap rates trending downwards so far this year, but this is a trend that will have been strengthened by the Bank of England’s decision to cut the base rate to 4.5% last week and some industry sources are already showing five-year swap rates having fallen below the 4% threshold, which is big news.”
He added: “We’ve also seen lenders act with greater confidence, choosing to reduce mortgage rates in anticipation of the recent interest rate cut and this simply wasn’t the case during the closing stages of last year despite us seeing two base rate reductions.”
Buy-to-let mortgage specialists moving in
For investors seeking a buy-to-let mortgage in the current market, they can choose from a wider range of lenders than ever, thanks to the rise of specialist lenders in recent years.
This has opened up more options for property investors seeking an alternative to traditional buy-to-let, for which they may have had a harder time finding buy-to-let mortgage products in the past.
According to Paresh Raja, CEO at Market Financial Solutions, throughout 2024 rather than give up on the changing market, scores of landlords instead opted to diversify their holdings to find “better returns or a more favourable sub-sector”.
He added: “For instance, in early 2024, houses in multiple occupation (HMOs) became especially popular with expanding investors, given the opportunity for higher yields. Additionally, as we approached the final weeks of last year, appetite grew for commercial mortgages, as landlords explored their options outside the residential scene entirely.”
Raja noted that this is where the specialist finance market has played a bigger role. “Where borrowers struggle with high-street lenders’ stringent criteria and limitations, bespoke providers will be there to provide a way forward.”
