"Despite the Bank of England cutting its base rate last month the financial markets don’t seem convinced by the UK’s direction of travel, as higher swap rates have fuelled higher mortgage rates"
- Jonathan Samuels - Octane Capital
Specialist lender Octane Capital compared the cost of 75% LTV buy-to-let mortgages from before the budget to the most recent data, in November and found that, since the budget, the cost of buy-to-let mortgages have risen by 2.5% for full repayment or 5.9% for interest-only mortgages.
For full repayment this brings the average monthly cost to £951 per month, up from £928 before the budget; while for interest-only monthly costs have risen from £470 pre-Budget to £498 now.
Why rates are rising
Mortgage rates are rising despite the Bank of England reducing the base rate from 5.0% to 4.75% on November 7th.
However, since the budget swap rates - which influence the cost of borrowing - have risen, indicating that the markets are worried about measures announced in Rachel Reeves’ budget.
The budget was controversial by increasing both taxes and borrowing, raising questions of whether this may stoke inflation. Taxes were upped by £40bn a year, with most of the money coming from an increase to employers' National Insurance Tax.
Buy-to-let landlords were also dealt a blow, as the stamp duty surcharge was increased by 3% to 5% in England and Northern Ireland.
Aside from the budget, CPI Inflation rate rose from 1.7% the month before to 2.3% in October 2024, which gives the Bank of England little legroom when it comes to making base rate cuts in the short term.
Buy-to-let rates still down
Despite the apparent negativity, it’s still significantly cheaper to take out a buy-to-let mortgage than a year ago.
The average monthly cost of a buy-to-let mortgage has dropped by -7% from £1,023 in November 2023 to £951 the same month this year. For interest-only mortgages, the difference is even greater, at -22.8%, from £645 in November last year to £498 in November 2024.
Monthly payments are cheaper despite solid house price gains over the period, as the cost of property has risen from £258,557 in November 2023 to £268,144 the same month this year, an annual increase of 3.7%.
Jonathan Samuels, Octane Capital CEO, commented: “Labour’s tenure in government hasn't gone smoothly so far, and that’s reflected by rising buy-to-let mortgage rate since its inaugural Autumn Budget.
“Despite the Bank of England cutting its base rate last month the financial markets don’t seem convinced by the UK’s direction of travel, as higher swap rates have fuelled higher mortgage rates.
“Combined with the government’s move to increase the stamp duty surcharge to 5%, becoming a buy-to-let landlord is becoming more challenging, especially for newcomers to the market.
“The hope is that sentiment changes in the months ahead, which would allow the Bank to continue cutting the base rate, and for buy-to-let rates to fall once again.
“One positive is - despite this blip - monthly mortgage payments are still far lower than a year ago, and that could still represent the long-term trend as we move into 2025.”
