Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property118. Read the original article for full details.
Rate hold doesn't mean mortgage costs stand still
The Bank of England held Bank Rate at 3.75% on 17 September, but the decision offers little comfort for landlords approaching the end of a fixed-rate mortgage deal. According to the report, quoted two-year fixed mortgage rates were around 0.95 percentage points above their level before the Middle East conflict — a general market observation, not a buy-to-let-specific figure, but one that shows how lending rates can rise even when Bank Rate is held.
Six members of the Bank's committee voted to hold, while three wanted an increase to 4%. The Bank's minutes describe higher market interest rates feeding through into borrowing costs faced by households and businesses, underlining that Bank Rate is only one influence on what lenders charge.
What this means for landlords and their advisers
An existing fixed rate normally continues for its agreed term, but the deal available to replace it may be more expensive than the one arranged several years earlier — regardless of the latest Bank decision. The report suggests landlords start with a schedule showing each mortgage balance, the rate being paid, when the deal ends, and what happens if no replacement is arranged, alongside rent, realistic running costs and cash reserves for repairs and voids.
To illustrate the stakes, the article uses an assumed portfolio of £1 million of interest-only borrowing, £90,000 of annual gross rent and a £25,000 allowance for operating costs and voids, leaving £65,000 before interest and tax. At an assumed 4% rate, annual interest would be £40,000, leaving £25,000 of cashflow before tax; at 5%, £50,000 of interest would leave £15,000; at 6%, £60,000 of interest would leave just £5,000. These are illustrative assumptions, not current quotations or forecasts, and exclude refinancing fees and capital expenditure. A move from 4% to 5% adds £10,000 to annual interest and cuts the illustrated cashflow by 40%.
A separate case study of a £3.4 million portfolio, under its stated assumptions, found that applying a 6% borrowing cost reduced estimated annual cashflow before tax from about £83,455 to £16,515 — with individual properties responding very differently.
Review early and stress-test the timing
The report recommends a review well before a deal expires, giving time to obtain mortgage quotations, check lender requirements and compare total cost over the expected holding period, including product fees and early repayment charges. Trade-offs include repaying some borrowing to cut interest (at the cost of cash that might cover repairs or a prolonged vacancy) versus a longer commitment that offers payment certainty but limits flexibility for retirement or a planned sale.
Landlords are also advised to test the timing of decisions: if several loans expire close together, or a major repair coincides with refinancing, an annual portfolio total can conceal difficult months. A monthly cashflow forecast can show when money will be needed.
Source: Property118