Buy to Let Market Seeing Reductions – And it’s Just the Start

The buy-to-let mortgage market is seeing rates fall despite the Bank of England holding its base interest rate at 5%. Lenders are reducing rates to stay competitive - which could benefit property investors.

The base rate has been held at 5% for now, but mortgage rates are continuing to drop following the base rate cut in August. After significant reductions to residential rates, buy to let mortgage products are following suit.

One mortgage provider is offering a two-year fixed rate at 3.99% for loan-to-value (LTV) ratios of up to 65%, while the five-year fixed rate has fallen to 3.69%. A major lender has also cut buy to let rates rates, offering a two-year fixed mortgage at 4.16% for 75% LTV. Borrowers with 60% LTV can secure rates starting from 3.69%. These reductions are expected to make the market more accessible to investors.

Specialist lenders are also stepping in with competitive offerings. One lender has reduced rates on energy-efficient buy-to-let properties, with rates starting from 3.24% for properties rated A-C on Energy Performance Certificates (EPCs).

Labour has reintroduced the focus on energy efficiency in the rental sector that the Conservative government scrapped in the 2024 Spring Budget. This is part of a broader drive by Labour to eliminate draughty homes and promote a higher standard of living in rented accomodation. During a recent Labour Party conference, energy secretary Ed Miliband announced that rented properties would need to meet “decent standards of energy efficiency” under Labour's plans to improve tenant living conditions. Prior to 2024, the initiative required all privately rented homes to achieve an EPC rating of C or higher by 2028. For now, the minimum rating remains E, but this is likely subject to change in the Autumn budget. 

Find the Perfect Buy-to-Let Mortgage

In response to the ongoing challenges faced by buy to let investors, many landlords are weighing the benefits of holding properties within limited company structures. It has become increasingly difficult to turn a profit in rental sector, particularly since the introduction of 'Section 24', which prevented buy to let investors from deducting fees and interest from their rental income.

In the wake of these market challenges, over two-thirds (67%) of landlords now plan to buy their next property through a limited company, up from 45% four years ago. In contrast, only 31% plan to buy in a personal capacity, down from 36% in 2020.

This shift is driven by the tax efficiencies offered to landlords who hold properties within companies. Rental income is subject to corporation tax, which is typically lower than personal income tax. While mortgage interest is no longer fully deductible for individual landlords, it remains deductible for companies, allowing for greater profitability.

However, higher mortgage rates are still testing landlords' resolve. UK Finance reports that the number of landlords in mortgage arrears has doubled over the past year, from 5,760 to 11,540. Estate agent Hamptons projects that private landlords will sell 139,820 buy-to-let properties by the end of 2023, with more than 294,000 homes sold by landlords since 2016.

Despite the slowdown in landlord purchases, the trend of selling off buy-to-let properties began well before recent interest rate hikes. Bank of England data shows that mortgaged purchases of buy-to-let properties are down by over 50% compared to 2021, suggesting that higher rates are deterring investors more than homebuyers.

Landlords nearing the end of their fixed-term deals may also benefit from the recent rate cuts, with lenders continuing to reduce rates to entice new business.

Recent rates we've secured for clients:

Are You Looking to Invest in a Buy to Let?

We can help. At Clifton Private Finance, we have relationships with high street, private and specialist lenders across the industry. Our dedicated team of mortgage brokers can offer you tailored advice on your options and guide you through the mortgage process.

Working with a broker can ensure you have access to the best deal for your circumstances, including market-leading rates and bespoke finance solutions. We have expertise working with complex circumstances, such as income structures, foreign currency earnings, and asset portfolios. 

Where appropriate, our team can take a holistic view of your wealth and put you in contact with the most suitable lender. 

We offer creative solutions for landlords who wish to purchase or remortgage buy to let properties. Call our buy to let team on  0117 332 5491 to discuss your requirements, or book a call-back below.

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