The Bank of England has officially started to ease borrowing conditions, cutting the base interest rate from 4.5% to 4.25% as of May 8th. Further reductions are expected throughout the year, with many economists predicting a drop to 3.5% by the end of the year. As a result, mortgage lenders are beginning to slash their rates. But with more cuts likely to come, many landlords are left wondering if now is the right time to fix their buy-to-let mortgage. In this article, we will explore whether right now is the best time for you to fix your buy-to-let mortgage and what the future holds for interest rates.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage allows you to lock in an interest rate for a set period, usually two to five years. This means your monthly repayments will stay the same, regardless of any future changes in the Bank of England’s base rate. However, lenders determine fixed rates based on their expectations of future economic conditions, including potential changes to the base rate. When the Bank of England raises or lowers the base rate, it can affect the cost of borrowing for lenders, who may then adjust the fixed rates they offer to new customers.
You can fix your mortgage by choosing a deal through your lender, ensuring predictable repayments and shielding yourself from potential rate fluctuations in the short term.
What is a Standard Variable Rate?
A standard variable rate (SVR) mortgage is the default rate set by a lender, often applied after a fixed or introductory deal ends. SVR rates are variable, which means they can fluctuate, usually in line with changes to the Bank of England base rate, but at the lender’s discretion. While SVRs can offer flexibility, they also carry risk, as payments may rise unexpectedly.
Why Is the Bank of England Reducing the Base Rate?
The base rate was at 4.75% at the beginning of the year, and has slowly been cut to 4.25%. The Governor of the Bank of England, Andrew Bailey, has said that rates are expected to drop gradually over the remainder of the year. The Bank’s main goal in reducing the base rate is to help stimulate the UK economy. By lowering the base interest rate, the Bank of England is lowering the cost of borrowing, encouraging spending and investment. This tactic is employed during times of low economic growth to help kickstart economic activity.
For property investors, this can mean lower monthly repayments, higher cash flow from rental income, and increased potential for portfolio expansion. Lower interest rates create a more favourable environment for landlords and investors by lowering financing costs and freeing up capital for further property investment or improvements.
If you would like to learn more about the impact that interest rate cuts have on the property market, click here to read more.
How Are Lenders Responding?
The reduction in the base rate has had a noticeable impact on the mortgage market. The UK’s major lenders, including HSBC and The Mortgage Works, have already adjusted their rates, with many buy-to-let mortgages now being available at a fixed rate below 4%. As the Bank of England gradually drops interest rates over the remainder of the year, lenders are also expected to drop their rates, creating competition amongst lenders to attract customers. Buy-to-let investors will benefit from the market, being able to access mortgages at better rates than previously before.
Should You Fix Your Mortgage Now?
Fixing your mortgage now could offer immediate benefits. The most recent base rate cut translates into approximately £29 in monthly savings on an average repayment. By fixing your rate, you could lock in this lower cost and gain protection from potential short-term market volatility.
However, if the base rate continues to drop, as predicted, it is possible that even better mortgage deals will become available later in the year. 3.5% on a two-year fix deals are predicted to be on the market by the end of 2025, meaning that investors can potentially save even more. By locking in now, investors could miss out on potential savings. However, it is important to note that this could mean missing out on a property in the meantime, so risk and reward will have to be weighed up by the buy-to-let investor on their chosen course of action.
What to Consider Before Fixing
Before deciding to fix your mortgage, it is important to consider your overall investment strategy. If you are looking for stability and predictable cash flow, fixing your buy-to-let mortgage now would be ideal. For investors who are more flexible and can tolerate economic fluctuations, staying on an SVR mortgage could allow you to benefit from further rate cuts in the future. It is important to be aware that if interest rates do drop further, better fixed-rate mortgages will be made available by lenders in the future. But there is no guarantee of this, and the economy can be easily influenced by major geopolitical events, meaning this could be the best time to lock in your deal.
You should also consider factors like:
- Early repayment charges
- Length of investment
- Portfolio expansion plans
- Refinancing flexibility
Fixing can offer peace of mind, particularly in a dynamic economic environment, but it may limit your ability to respond to maximise future market opportunities.
Is Now the Best Time to Fix?
While locking in now will protect investors from any short-term volatility, rates are expected to gradually decrease throughout the year, potentially leading to even lower rates being offered by lenders. Ultimately, buy-to-let investors should keep focused on what level of certainty will suit them better rather than just the Bank of England’s rate. Depending on your property investment goals, now may be the best time to fix your mortgage.
Do you need further guidance on how to proceed with your buy-to-let mortgage? At Advantage Investment, we can provide investors with a unique, personalised consultation. If you are unsure whether to fix your current mortgage, contact us today to explore your options.
