In recent years, landlords have enjoyed relatively low borrowing costs. However, a shift in the economic environment has led to increased mortgage rates, squeezing the profits of many property investors. There are approximately 2 million mortgaged buy-to-let properties in the UK, with around 230,000 of these deals expiring this year alone, making the decision on what to do next a significant concern for many.

What’s the Damage?

The typical buy-to-let mortgage rates—both two-year and five-year fixed—are currently hovering around 5.6%. For a landlord holding a £200,000 interest-only mortgage, this means a monthly payment of £934, a substantial increase from the rock-bottom rates of previous years. When you add other expenses like maintenance, insurance, and agent fees, the need for rental income to cover these costs becomes more pressing.

For those who own properties through a limited company, the average rates are slightly higher at about 5.67% for two-year fixes and 5.92% for five-year fixes. The advantage here is the ability to fully deduct mortgage interest costs from tax bills, a significant boon under the current tax regime.

The Best Mortgage Deals on the Market

Given the myriad of costs and challenges, finding a competitive mortgage deal is more important than ever. Here are some standout options:

• Five-year fixes: The Co-operative Bank offers a rate of 4.39% with a £1,499 fee at 60% loan-to-value (LTV), and HSBC offers a 4.78% rate with no fees at the same LTV.
• Two-year fixes: The Co-operative provides a product at 5.18% with no fees at 60% LTV, while HSBC has a rate of 5.38% with no fees.

Fix or Tracker?

With the unpredictability of the market, fixing a mortgage for five years can offer a stable and predictable payment schedule. This is particularly appealing in a climate where interest rates have surged.

• Five-year fixes are popular among larger landlords who favour stability over speculation.
• Affordability tests are more lenient on longer fixes, potentially allowing landlords to borrow more based on projected rental incomes.

The Case for Trackers

Tracker mortgages, which adjust based on the Bank of England’s base rate, offer flexibility and potentially lower rates should the base rate drop. However, they also come with the risk of increasing should the base rate rise.

• Current tracker rates: For instance, HSBC offers a two-year tracker at 6.34% (base rate plus 1.09%) at 60% LTV with no fees.