Borrowing landlords turn to interest-only BTL loans and cash injections

Higher borrowing costs are forcing landlords to rethink how they finance portfolios, with interest-only loans and cash injections becoming more common, research reveals.

The analysis from Hamptons, using Connells Group data, shows the average buy to let rate secured by a landlord has reached 4.84% in April.

That’s up from 4.20% in January, with two-year fixes at 4.73% and five-year deals at 4.94%.

By early April, 43% of all new BTL lending was agreed at rates of 5% or above, compared with just 8% at the start of the year.

The firm says rates take buy to let borrowing costs back to levels last seen in December 2023.

Landlords manage higher borrowing

The firm’s head of research, Aneisha Beveridge, 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.”

She added: “In effect, three or four years of typical rental growth were squeezed into the space of 12 months.

“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.”

Big jump in repayments

For landlords coming off fixed deals, the jump is already feeding through with monthly payments for those exiting two-year fixes in April rising by 3.4%.

Landlords refinancing five-year deals agreed in 2021 saw payments increase by 28.5%.

However, since most buy to let borrowing sits on an interest-only structure, rate changes pass through quickly.

A shift from 2.0% to 4.0% doubles monthly payments on interest-only loans, while repayment mortgages rise by 29%.

On a £150,000 loan, that works out at a £250 increase versus £162.

Landlords opt for interest-only

That difference in repayments is shaping behaviours more landlords are opting for interest-only borrowing, particularly on new purchases.

Hamptons says that 78.4% of lending in April has been structured this way, up from 71.1% in January.

While it lowers monthly costs, the debt remains.

A typical repayment mortgage now averages £828 a month, compared with £580 for interest-only borrowing, leaving a £258 gap.

Landlords add cash to deals

Meanwhile, more landlords are putting in cash when they remortgage on interest-only deals and 40% have done so this year, up from 34% in 2025.

The pattern shifts depending on equity levels.

Around 65% of landlords with less than 20% equity have reduced borrowing at remortgage, compared with 35% of those with at least 40% equity.

Average injections stand at £30,100, cutting balances by 18.1%.

That reduces loan-to-value ratios from 61.6% to 55.2%, with most of the change coming from overpayments rather than price growth.

Shorter fixed terms are also gaining ground with two-year fixes remaining cheaper than five-year products since May 2025.

A conversation worth having?

If you are weighing up your own strategy, whether that’s to sell, expand, or restructure to improve profitibility, it is worth having a discussion with a Property118 consultant to take a closer look at how your portfolio is structured as a whole now, and to forecast the outcomes based on multiple scenario’s.

These conversations are typically most useful for landlords with established portfolios and relatively modest borrowing who are beginning to reflect on how their assets could work more effectively in the years ahead.