Rising mortgage rates are forcing landlords to rethink borrowing strategies, with interest-only lending, cash injections and shorter fixed deals all on the rise.
Analysis from Hamptons shows that by early April, 43% of new buy-to-let loans were agreed at rates of 5% or above, up sharply from just 8% in January.
Average landlord mortgage rates have climbed to 4.84%, with two-year fixes at 4.73% and five-year deals at 4.94%.
Higher costs are feeding through quickly. Landlords coming off two-year fixes saw payments rise by 3.4%, while those exiting cheaper five-year deals agreed in 2021 faced a 28.5% increase.
INTEREST-ONLY BORROWING
In response, landlords are increasingly turning to interest-only borrowing. 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 and the highest level since late 2022.
The shift reflects the pressure on monthly affordability. On a typical £150,000 mortgage, an interest-only deal costs around £580 a month, compared with £828 on a repayment basis.
More landlords are also injecting cash when refinancing. Around 40% of those remortgaging on interest-only terms paid down debt, with an average contribution of £30,100, reducing loan-to-value ratios and easing monthly payments.
FUTURE PRICING
At the same time, shorter-term fixes are gaining ground. 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 uncertainty over future pricing.
Rental growth is also picking up. Rents on newly let homes rose by 1.0% annually in March across Great Britain, driven by a 4.1% increase in Inner London.
Tenant demand is strengthening, with a 24% rise in renters searching for homes compared to a year ago, while supply remains constrained, with 1% fewer homes available and stock still a third below 2019 levels.
RISING RATES
Aneisha Beveridge (main picture, inset), Head of Research at Hamptons, says: “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.”
BALANCING THE BOOKS
And she adds: “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.
“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.”
