In November, the Bank of England base rate was cut for the second time in 2024 to 4.75%. Although there was no further change at the December meeting of the Monetary Policy Committee, the fact that cuts have finally happened in the last six months is a relief to all mortgage holders, including landlords. The first cut in August was enough to kickstart demand, fuelled by rates that had already been cut by expectant lenders.
By October, average buy-to-let mortgage rates had hit their lowest levels since September 2022, according to Which?, although they were still above 5%. That was far less than their 6.79% peak of August 2023 but higher than the 3.15% rates of five years ago.
What next?
But what next for landlords looking to invest in new buy-to-let mortgaged properties or who are coming off fixed-rate deals and looking to fix again to keep control of their costs and finances?
As with the August announcement, the November cut had been long anticipated.
Although the majority decision was greater in favour than in August (with 8 of the 9 in favour as opposed to a 5:4 split at the August meeting) it followed just a few days after Labour’s first budget since coming to power and the uncertainty of the US election. Both unnerved the market and led to mortgage rates rising again, although pre-Xmas they were coming down once more as lenders fought for business.
The budget also delivered the surprise of an immediate increase in stamp duty for buy-to-let landlords. This is increasing costs which will be heightened further when the Renters Rights Bill is implemented, probably in the Spring.
Yields remain high, particularly for HMOs
Costs are high for landlords and in the short-term at least there will be no major change to the rate for buy-to-let mortgages either. Even when rates do begin to fall again, new fixed-rate deals will still be higher than those landlords are exiting from but the same is true for all mortgage holders.
The good news is they are less than in 2023 and recent research shows that yields for landlords continue to perform well.
Based on mortgage offer data for buy-to-let purchase and remortgage, the average yield hit 6.72% in September. This is up from 6.69% at the end of the second quarter of 2024 and 6.48% the year before. It is based on the average buy-to-let property value of £343,356 and rental income of £23,076.
Landlords of houses in multiple occupation (HMOs) are doing even better, with yields of 8.34% according to the figures. HMO landlords typically enjoy higher profits than landlords of standard lets, although this reflects the extra effort involved.
With promises of further interest rate cuts to come in 2025 buy-to-let mortgage rates will eventually follow suit which will be welcome news for all buy-to-let landlords.
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