BTL mortgage rates predicted to fall further

BTL mortgage rates predicted to fall further

0:03 AM, 18th February 2025, About a month ago

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The Bank of England’s recent base rate drop, coupled with declining swap rates, hints at improved BTL mortgage affordability, Octane Capital says.

Its analysis reveals a downward trend in swap rates this year.

Following the base rate cut to 4.5%, the average five-year swap rate reached 4.16%, lower than the 4.23% average between the Autumn Budget and year-end, and the 4.31% seen in early January.

This shift has already impacted mortgage rates as average buy to let rates dropped from 4.53% in 2024 to 4.38% in January.

Owner-occupier rates also fell, from 4.81% in 2024 to 4.65%.

Buy to let investors

The firm’s chief executive, Jonathan Samuels, said: “It is, of course, still very early days, but current market indicators suggest that there is light on the horizon for the nation’s home movers and buy to let investors and the year ahead is set to be one of far greater positivity when compared to 2024.

“Not only have we seen swap rates trending downwards so far this year, but this is a trend that will have been strengthened by the Bank of England’s decision to cut the base rate to 4.5% last week and some industry sources are already showing five-year swap rates having fallen below the 4% threshold, which is big news.”

He added: “We’ve also seen lenders act with greater confidence, choosing to reduce mortgage rates in anticipation of the recent interest rate cut and this simply wasn’t the case during the closing stages of last year despite us seeing two base rate reductions.”

Mr Samuels is predicting that mortgage affordability will continue to strengthen over the coming months.

Swap rates are falling

Lenders use swap rates — the cost of fixed-rate funds from financial institutions — to manage risks linked to fixed-rate mortgages.

These rates, typically derived from government bond yields, or gilts, mirror market predictions for future interest rates.

Consequently, swap rate fluctuations influence mortgage rates, and these are currently falling, Octane says.

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