Rising mortgage rates are forcing landlords to rethink how they finance their portfolios, with a growing shift towards interest-only borrowing, cash injections and shorter fixed-rate deals, according to the latest lettings index from Hamptons.
The share of new buy-to-let mortgages agreed at rates of 5% or above surged to 43% in early April, up from just 8% in January, as borrowing costs returned to levels last seen in December 2023.
In response, 78.4% of new buy-to-let lending on purchases is now on an interest-only basis, up from 71.1% at the start of the year.
On a typical landlord purchase in April 2026, a repayment mortgage cost an average of £828 a month compared with £580 on an interest-only deal. In cash terms, this is the largest gap since September 2022.
At the same time, landlords are increasingly injecting cash to bring down borrowing. Around 40% of those remortgaging onto interest-only deals have paid down part of their loan this year, contributing an average of £30,100 – equivalent to reducing the outstanding mortgage balance by 18.1% – to keep monthly payments manageable.
Shorter-term fixed-rate mortgage products are also gaining favour. Two-year fixed deals now account for nearly half (48.3%) of new landlord lending, compared with 33% for five-year fixes.
Despite the pressure on landlords, rental growth showed signs of recovery in March. Rents on newly let homes rose by 1% annually across Great Britain, up from 0.5% in February, with inner London driving the increase after a 4.1% rise.
Tenant demand has also rebounded sharply, with a 24% annual increase in the number of renters searching for a home in March. However, supply remains constrained, with 1% fewer homes available to rent than a year ago, and 33% fewer than in March 2019.
Aneisha Beveridge, head of research at Hamptons, said: “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.”
Beveridge added: “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.”
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