Landlord mortgage rates soar to highest level in two years… and renters could bear the brunt

Landlords are seeing their costs soar as buy-to-let mortgage rates reach their highest levels in two years, with fears the increases may be passed to tenants through higher rents. 

The typical five-year fixed rate, interest-only buy-to-let mortgage has risen from 5.05 per cent to 5.72 per cent since the conflict in Iran began, according to rates scrutineer Moneyfacts. 

For a typical investor with a £200,000 mortgage, this would mean monthly payments rose from £842 a month to to £953, its highest since 2024.

The average two-year fix has gone from 4.65 per cent to 5.4 per cent, a peak not seen since February 2025.

Someone with a £200,000 interest-only mortgage could have fixed for two years at the end of last month and paid £775 a month. Now they can expect to pay £901.

Interest-only mortgages are the product of choice for most landlords as it helps preserve their cashflow. However, mortgage rate changes tend to be felt more acutely as a result.

The range of mortgages available to landlords has also fallen sharply, with around 1,300 deals disappearing since the start of March.

‘Soaring borrowing costs will cause pain to landlords this year, as they join millions of consumers facing higher mortgage repayments,’ says Rachel Springall, finance expert at Moneyfacts.

‘The unrest in the Middle East has caused absolute mayhem in the residential mortgage market, buy-to-let rates are also being hiked, and hundreds of deals have been pulled from sale.’

It is possible for landlords to do better than the average rate, however – especially if they have more equity in their property.

Landlords with 40 per cent equity looking to remortgage can get rates as low as 4.29 per cent on a five-year fix or 3.14 per cent on a two-year fix, though these come with high fees.

Those with 25 per cent equity could get a five-year fix at 4.42 per cent with a 3 per cent fee, from The Mortgage Works.

Will rents go up for tenants? 

For tenants, the fear will be that rents could now rise if landlords pass the extra costs on in the form of higher rents. 

Howard Levy, director and buy-to-let specialist at mortgage broker SPF Private Clients thinks this hinge on how long the war continues for.

‘It can take time for higher rates to filter through to higher rents as landlord mortgages will have different end-dates,’ he says.

‘If the war finishes in the short term, the fact that rates were higher for two or three months say would not have a major impact on rents. 

‘If it lasts longer than three months, then any rates coming up for review would need to be booked during a higher rate environment, which could well mean higher rents as landlords look to pass these costs on.’

It comes alongside a slew of other tax and legal measures which could hit landlords’ profits. 

Tax on rental income is going up from next year. From 6 April 2027, higher rate taxpaying landlords will pay 42 per cent tax on rental income, rather than 40 per cent.

From 1 May, the new Renters Rights Act comes into force, which among other things, will end no fault evictions, limit rent increases to once a year and ban bidding wars.

Many landlords are also having to prepare themselves for the new ‘Making Tax Digital’ rules that will see them having to submit quarterly updates to the taxman and use new software in order to do so. 

Zaman Sheikh, director of Northwood estate agents in Chelmsford, thinks rising mortgage rates creates the ‘perfect storm’ for landlords.

‘Buy-to-let was already an uphill slog and, with mortgage rates soaring, it has now become an Everest. 

‘Landlords of all sizes are being forced to reassess their portfolios and are now laser-focused on return on investment  and yields. We’re seeing a lot of London landlords sell up as yields in the capital are too low to make it worth the risk.’

‘For many, higher mortgage rates have acted as the final straw and they are choosing to exit the sector altogether.