What a 1% Rate Rise Does to Your Buy-to-Let Cashflow
2026-11-09
Your mortgage rate is usually the single biggest cost in a buy-to-let, and it's the one you control least. When a fixed rate ends, the new rate can reset your cashflow overnight.
The rule of thumb is simple: every 1% on £100,000 of borrowing costs £1,000 a year on interest-only — about £83 a month. But a rate rise reaches your numbers in three separate ways, and the third one is the one most landlords miss.
Effect 1: Monthly Cashflow
Take a typical example:
- Property value: £200,000
- Mortgage: £150,000 (75% LTV), interest-only
- Rent: £1,000 a month (£12,000 a year)
- Other costs (management, insurance, maintenance, voids, compliance): £2,400 a year
| Mortgage rate | Annual interest | Pre-tax cashflow | Per month |
|---|---|---|---|
| 4.5% | £6,750 | £2,850 | £238 |
| 5.5% | £8,250 | £1,350 | £113 |
| 6.5% | £9,750 | −£150 | −£13 |
A two-point move takes this property from comfortable to loss-making. The break-even rate — where cashflow hits zero — is:
Break-even rate = (Rent − Other costs) ÷ Loan = (£12,000 − £2,400) ÷ £150,000 = 6.4%
Work out the break-even rate for every property you own. It's the single most useful number for knowing which properties are exposed when rates move.
On a Repayment Mortgage
On repayment, the payment rises by less than the interest-only figure — but it starts higher, because you're also repaying capital.
| Mortgage rate | Monthly payment (25 years, £150,000) | Change |
|---|---|---|
| 4.5% | £834 | — |
| 5.5% | £921 | +£87 |
| 6.5% | £1,013 | +£92 |
See Interest-Only vs Repayment for how to choose between the two.
Effect 2: After-Tax Profit
For landlords who own property in their own name, Section 24 means mortgage interest isn't deducted from rental profit. Instead you receive a tax credit worth 20% of the interest.
So when the interest rises by £1,500:
- Personal-name landlord (any tax band): the extra £1,500 is paid in cash, and the tax credit returns £300. Net cost: £1,200. For a higher-rate taxpayer, nothing about the rest of the tax bill changes — tax is still charged at 40% on a profit figure that ignores the interest
- Limited company paying 25% corporation tax: the interest is fully deductible, so the extra £1,500 cuts the tax bill by £375. Net cost: £1,125
The bigger problem for a higher-rate personal landlord is that rising interest can make a property loss-making in cash terms while it still shows a taxable profit. Model your tax alongside your cashflow — see the Rental Income Tax Guide.
Effect 3: How Much You Can Borrow at Remortgage
This is the one that catches landlords out. Buy-to-let lenders size the loan by an interest cover ratio (ICR): the rent must cover the interest by a set margin at a stressed rate.
Typical tests:
- 125% of the interest for limited companies and basic-rate taxpayers
- 145% for higher-rate taxpayers borrowing personally
- At a stressed rate — often around 5.5%, or the pay rate on a five-year fix
Maximum loan = Annual rent ÷ ICR ÷ Stress rate
With £12,000 of rent:
| Stress rate | Max loan at 125% | Max loan at 145% |
|---|---|---|
| 5.5% | £174,545 | £150,470 |
| 6.5% | £147,692 | £127,321 |
A one-point rise in the lender's stress rate cuts the maximum loan by around £23,000-£27,000. If your current mortgage is £150,000 and the stress rate goes up, you may not be able to remortgage the full balance — and the shortfall has to be found in cash, or you stay on the lender's standard variable rate.
[!warning] Check the remortgage before the fix ends, not after Run the ICR test on your current rent about six months before your fixed rate ends. If the maximum loan comes in below your balance, you have time to raise the rent with a Section 13 notice, look at five-year products (often assessed at the pay rate) or plan a capital repayment.
What to Do Now
- List every fixed rate's end date. A rate shock is only a shock if you don't know it's coming.
- Calculate each property's break-even rate. Anything under 6% deserves a plan.
- Run the ICR test at today's stress rates. Know your maximum loan before you need it.
- Price longer fixes. A five-year fix often costs a little more than a two-year but may be assessed at the pay rate — which can be the difference between refinancing the full balance and not.
- Review rents. If a property is below market rent, a once-a-year Section 13 increase in line with the market protects the cashflow and the ICR at the same time.
Compare products side by side, including the stress test:
:::tool mortgage-calculator Compare Mortgage Products and Stress Tests :::
Then see what each rate scenario does to your cashflow over the next five years:
:::tool cashflow-projection Project Cashflow Under Different Rates :::
Summary
- Every 1% on £100,000 is about £1,000 a year interest-only (£83 a month)
- Work out each property's break-even rate: (Rent − Other costs) ÷ Loan
- Section 24 limits personal landlords' relief to 20%, so rising interest hurts more than it looks
- Higher stress rates cut how much you can borrow — check the remortgage before the fix ends
- Five-year fixes, market-rate rent reviews and early planning are the main defences
Rates aren't predictable, but your exposure to them is. Know the number at which each property stops paying for itself, and you'll never be surprised by a renewal letter.
This guide is for educational purposes only. Lender criteria vary and change often — speak to a mortgage broker about your specific position.