Buy-to-let landlords are rapidly changing borrowing strategies as mortgage rates climb with a growing shift towards interest-only lending and shorter-term fixes.
Analysis from Hamptons shows that 43% of new buy-to-let loans were agreed at rates of 5% or above by early April, up from just 8% in January.
Average rates have risen to 4.84%, with two-year fixes at 4.73% and five-year deals at 4.94%, pushing borrowing costs back towards levels last seen in 2023.
The impact is most acute for landlords coming off fixed deals. Those exiting two-year fixes have seen monthly payments rise by 3.4%, while landlords rolling off cheaper five-year deals agreed in 2021 are facing increases of 28.5%.
INTEREST-ONLY BORROWING
In response, interest-only borrowing is becoming the default. So far this month, 78.4% of new buy-to-let lending has been on an interest-only basis, up from 71.1% in January.
The shift reflects affordability pressures, with a typical repayment mortgage costing £828 a month compared with £580 on an interest-only basis.
Landlords are also injecting capital to reduce borrowing costs. Around 40% of those remortgaging on interest-only deals have paid down debt, contributing an average of £30,100 to lower loan-to-value ratios and monthly repayments.
At the same time, shorter-term fixes are gaining traction. Two-year deals account for 48.3% of lending so far in April, compared with 33% for five-year products, as landlords opt for lower initial rates despite expectations that borrowing costs may remain elevated.
TENANT DEMAND
Rising costs are feeding into rental dynamics. Rents on newly let homes increased by 1.0% in the year to March across Great Britain, with Inner London driving growth at 4.1%.
Tenant demand is also strengthening, up 24% year-on-year, while supply remains constrained, with 1% fewer homes available and stock still significantly below pre-pandemic levels.
HIGHER COSTS
Aneisha Beveridge (main picture, inset), Head of Research at Hamptons, said: “Rising mortgage rates are once again shaping landlord behaviour, as many look for ways to manage higher borrowing costs.
“The last time interest rates rose sharply back in 2022, they unleashed record rental growth. Landlords were able to pass higher mortgage costs on to tenants as would-be buyers increasingly chose to rent until rates began falling back, stoking demand for rental homes. In effect, three or four years of typical rental growth were squeezed into the space of 12 months.
“While rents fell last year, early signs suggest the pace of rental growth is beginning to pick up as tenant demand rebounds and mortgage rates rise.
“The falls recorded in 2025 have already been wiped out, while the 24% annual increase in tenants starting the search for a new home in March was the largest since our records began.”
BALANCING THE BOOKS
And she added: “While stronger rental growth may help landlords balance the books over the medium to long term, mortgage stress tests mean they must also remain profitable in the short term, even at higher rates.
“For many, that means keeping mortgage payments at an affordable share of the rent – whether by paying down debt or moving over to interest-only deals with lower monthly costs.”
