Landlords hoping for lower buy-to-let mortgage rates this year may need to prepare for a potentially longer wait, as global economic uncertainty threatens to slow the pace of interest rate cuts.

Rising energy prices linked to geopolitical tensions could place renewed pressure on inflation, which remains the key factor influencing interest rate decisions by the Bank of England (BoE). If inflation proves more persistent than expected, policymakers may choose to keep interest rates higher for longer to stabilise prices.

For buy-to-let landlords planning to refinance mortgages or expand their portfolios, this uncertainty could mean borrowing costs remain elevated throughout much of the year.

Recent analysis suggests that continued volatility in global energy markets could push UK inflation higher again if prices remain elevated. The UK’s Office for Budget Responsibility (OBR) has warned that inflation could end 2026 around 3% if energy prices remain high, above earlier forecasts.

Mortgage markets react to uncertainty

Financial markets have already begun adjusting expectations around the timing and scale of interest rate cuts. Government bond yields known as gilt yields play a major role in determining the pricing of fixed mortgage rates.

When financial market investors such as pension funds, banks and asset managers expect inflation to remain higher for longer, gilt yields tend to rise, which increases wholesale funding costs for lenders. These higher costs are often passed through to borrowers via mortgage rates.

Recent market movements have shown UK bond yields rising as investors reassess inflation risks linked to energy price volatility.

Industry analysts note that increases in swap rates and gilt yields often lead to higher fixed-rate mortgage costs or fewer competitively priced deals available from lenders.

For buy-to-let landlords, this could translate into fewer attractive fixed-rate products, particularly for longer-term mortgage deals.

Ongoing pressure on landlords

Borrowing costs have been one of the biggest challenges facing landlords in recent years. Since the end of the ultra-low-interest rate environment that existed before 2022, many buy-to-let investors have faced significantly higher mortgage repayments when refinancing.

At the same time, they have also faced rising operating costs including maintenance, insurance and regulatory compliance.

Although rents have increased across many parts of the UK, higher financing and operating costs have reduced profit margins for some landlords, particularly those with larger or more highly leveraged property portfolios.

As a result, landlords refinancing multiple properties at higher interest rates could see overall borrowing costs increase substantially depending on loan size, loan-to-value ratios and mortgage structures.

What happens next?

Markets had previously expected a series of gradual interest rate cuts as inflation continued to ease.

For landlords planning refinancing or new property purchases, the key message is to remain cautious and prepared for potential volatility in mortgage markets.

Reviewing existing mortgage arrangements, understanding exposure to variable rates and planning for a range of borrowing cost scenarios could help them manage financial risk while the economic outlook remains uncertain.