Why Are Buy To Let Mortgage Rates Dropping?

Home Why Are Buy To Let Mortgage Rates Dropping?
Mortgages, Commercial, DIY Investing Ben Davies
6 Sep 2023

In a surprising turn of events, investors in the UK's buy-to-let property market have seen mortgage rates drop, even amidst the ongoing volatility in the financial markets. This trend has left many investors wondering about the reasons behind these favourable lending conditions.

In this article, we delve into the factors driving this phenomenon, answering the question, why are buy to let mortgage rates dropping? Backing our analysis with credible sources.

Key Takeaways

  • Buy-to-let mortgage rates have recently dropped due to intense competition amongst lenders and their desire to secure new business and gain a competitive edge.
  • Economic uncertainty and the historic low-interest rate environment, driven by the Bank of England's policies in response to the COVID-19 pandemic, have contributed to these favourable lending conditions.
  • The Bank of England's Term Funding Scheme (TFS) plays a role by providing low-cost funding to lenders, enabling them to offer more competitive rates to borrowers.
  • Looking ahead, it's uncertain whether rates will continue to decrease or stabilise. Mortgage swap rates indicate lender competition is a significant driver of recent rate drops, and investors should stay informed and consider using brokers to secure the best rates.

Why Are Buy To Let Mortgage Rates Dropping?

Buy-to-let mortgage rates are dropping due to a few factors, but the recent drops are mainly driven by the desire for the lenders to write new business and gain a competitive edge over other lenders. 

Lenders are all trying to secure business with lower interest rates. Many of them expected a drop in business this year, but the reality is worse than anticipated, with transactions down by an average of 30-35%.

Further reasons include the historic low interest rate environment, the competitive lending market, Bank of England term funding support, and further economic uncertainty.

Competitive Lending Market

Another significant factor contributing to falling buy-to-let mortgage rates is the highly competitive nature of the lending market in the UK. With numerous lenders vying for business, banks and financial institutions are compelled to offer attractive rates to entice borrowers. According to The Financial Times, this competition amongst lenders is a reflexion of the intense rivalry within the financial sector to secure borrowers seeking to invest in property.

Economic Uncertainty

While it might seem counterintuitive for mortgage rates to drop amidst financial volatility, lenders may be adjusting their strategies in response to economic uncertainty. Historically, during periods of instability, investors often turn to tangible assets like property as a safe haven. Lowering mortgage rates can stimulate property investment, potentially stabilising the housing market. As reported by BBC News, lenders may view this as a proactive measure to bolster the property sector in the face of economic turbulence.

Historic Low-Interest Rate Environments

The Bank of England's decision to maintain historically low base interest rates has played a pivotal role in the desire for lenders to return to lower buy-to-let mortgage rates. As a response to the economic impact of the COVID-19 pandemic, the Bank of England lowered the base rate to just 0.10%. This action, in turn, has influenced lenders to offer more competitive rates to borrowers, including buy-to-let investors. According to a report by The Guardian, the Bank of England cited the need for "lower borrowing costs" to stimulate the economy as a driving factor behind this policy. And despite recent base rate increased due to global instability, the environment for mortgage rates is still low given the historical highs, such as those in the 1970's.

Bank of England Support

The Bank of England has also introduced schemes to support lending and ensure that the financial market remains fluid. One such program, known as the Term Funding Scheme (TFS), provides funding to banks and building societies at interest rates close to the base rate. This, in turn, allows lenders to offer more favourable rates to their customers. The Bank of England's official website provides details on these measures aimed at supporting lending in the UK.

What Is The Term Funding Scheme?

The Term Funding Scheme (TFS) is a financial program implemented by the Bank of England to provide funding to banks and building societies at interest rates that are close to the Bank of England's base rate. The primary aim of the TFS is to support lending to households and businesses during times of economic uncertainty or stress.

Here's how the Term Funding Scheme can help encourage lower buy-to-let mortgage rates:

  • Access to Low-Cost Funding: Under the TFS, banks and building societies can obtain funding from the Bank of England at interest rates that are very close to the central bank's base rate. This means they can secure funding at a relatively low cost.

  • Cost Savings for Lenders: When lenders can access funding at lower interest rates, they can reduce their overall funding costs. As a result, they may be more willing to pass on these cost savings to borrowers, including buy-to-let property investors, by offering more competitive mortgage rates.

  • Competitive Advantage: Lenders that participate in the TFS have a competitive advantage over those that don't, as they can offer borrowers more attractive rates. This competition amongst lenders can lead to a reduction in mortgage rates to attract borrowers.

  • Stimulating Borrowing: Lower mortgage rates can stimulate borrowing and investment in the property market, including the buy-to-let sector. Investors are more likely to take out mortgages when rates are favourable, which can boost the housing market and related industries.

Where Do Buy To Let Interest Rates Go From Here?

Looking ahead, it's uncertain whether rates will continue to decrease or stabilise as lenders seek to boost their businesses amid economic challenges. Mortgage swap rates seem stable, leading us to believe the recent drops in buy to let mortgage interest rates is mostly down to the lenders fighting for business. Investors should stay informed and consider leveraging broker expertise to secure the best rates.


In conclusion, the drop in buy-to-let mortgage rates in the UK amid financial market volatility can be attributed to a combination of factors. The low-interest rate environment, fierce competition amongst lenders, economic uncertainty, and the support of the Bank of England are all contributing factors. Investors, therefore, have an opportune moment to secure financing for their property ventures.

As always, it's crucial for investors to stay informed about market trends and mortgage offers, as conditions may change. With buy-to-let mortgage rates currently at attractive levels, investors are advised to explore their options and consider how these favourable lending conditions might align with their investment strategies.

This is why it is imperative that a broker is used in this market. Whilst you may be able to approach banks directly, a broker will have the knowledge and the know-how of securing you the best possible rate in the most efficient manner.

For a free impartial discussion, please contact Ben on 07534 681 850 or email him at ben.davies@cfbrokers.co.uk

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