The Bank of England held the base rate at 3.75% last Thursday, and if you stopped reading there you might think nothing had changed for buy-to-let borrowing. Three of the nine committee members actually wanted to push it up to 4% there and then, and Andrew Bailey made a point of saying that if the situation in the Middle East keeps driving oil prices up, the Bank may need to raise rates to keep a lid on inflation. That’s a genuinely different tone from “we’re on hold, nothing to see here.”
Here’s the part that actually affects your remortgage, though. Fixed buy-to-let pricing was never really about the base rate in the first place. It’s set off swap rates, which is essentially what it costs a lender to borrow the money it then lends to you, fixed for two or five years. Those have been climbing hard all year. The two-year swap was sitting at 3.33% back in February. By 3 September it had reached 4.26%. By the middle of this month it was above 4.70%. Lenders don’t sit on a move like that. HSBC, NatWest and Barclays have all put their fixed buy-to-let rates up by 25 to 40 basis points over the last few weeks, and Family Building Society pulled some of its fixed products off sale altogether while it worked out new pricing.
The average two-year fixed buy-to-let rate is now around 5.32%, and the five-year is close to 5.70%, both up from where they stood at the start of September. Not dramatic on their own, but if you’re one of the many investors coming off a five-year fix taken out back in 2021, when 1.8% to 2.4% was normal, the jump isn’t small. On a £200,000 interest-only mortgage, moving from 2.1% to 5.2% takes your annual interest bill from £4,200 to £10,400. That’s another £500 or so a month coming straight off what used to be profit, and it isn’t as though rents can simply be put up to cover it whenever you fancy, not with rent rises now limited to once a year through a formal notice.
I’d normally say don’t panic and don’t rush into anything, and that’s still true. But what’s changed this week isn’t the mortgage market itself, it’s the Bank’s own language about it. A month ago the general assumption was that rates were eventually heading down, even if slowly. Now the Bank is openly telling you a rise is on the table if oil keeps climbing. Whether that actually happens by the next decision on 5 November, I couldn’t tell you, and neither can the Bank, whatever confidence its statements project. But it does shift the balance of what a sensible person does with their finances between now and then.
If you’ve got a fix ending in the next year, this is worth a proper conversation with a broker now, not an “I’ll check nearer the time” conversation. Get the real numbers: what rate you’d actually be offered today, how your figures stack up against a lender’s interest coverage ratio test (most sit somewhere between 125% and 145% once your rental income and running costs are plugged in properly), and whether a top-slice using personal income is worth having in your back pocket if the rental numbers alone don’t quite clear the bar.
It’s also worth looking at the whole portfolio while you’re at it, not just the one property whose fix happens to be ending. If you’ve got several mortgages spread across different lenders and different renewal dates, a broker who can see the full picture might spot that moving some borrowing around, or paying down a chunk on your lowest-yielding property, makes the whole thing stack up more comfortably than refinancing each deal in isolation as it comes up. None of this costs anything to find out, and knowing exactly where you stand beats guessing and hoping the Bank changes its mind again.
By the way, if you don’t have a mortgage broker, or you’d like a second opinion, I’ll be very happy to put you in touch with my very good mortgage broker.
Just email me: thepropertyteacher@gmail.com and I’ll happily make the introduction.
Here’s to successful property investing.
Peter Jones
Author, property investor & ex-Chartered Surveyor
P.S. If you’d like a deeper dive into property investing based on the real-life experience of an investor who has built a substantial multi-property portfolio, my popular e-book, The Successful Property Investor’s Strategy Workshop, explains how I built my own portfolio from scratch and the principles that can help you do the same.
You can find out more here: https://thepropertyteacher.co.uk/the-successful-property-investors-strategy-workshop/
