What the 3.75% Bank of England Interest Rate Hold Means for Landlords

If you're a landlord, you probably saw the headline and felt a small flicker of relief. The Bank of England held interest rates at 3.75%. No rise. But here's the part many don’t understand. Because of the way landlords are taxed, your Buy-to-Let can cost you more even when the base rate does not change.

Let's start with the facts, then get to what they actually mean for you. The Bank of England interest rate is 3.75%. The Monetary Policy Committee (MPC) held it there on 30 July, voting six to three, with three members pushing for an immediate rise to 4%. The next decision is due on 17 September.

Why Did the Bank of England Hold Interest Rates?

The Bank of England held the interest rate at 3.75% because inflation remains above its 2% target and it is concerned that the situation with Iran could push it higher still. Although CPI inflation fell to 2.6% in June 2026, the Bank’s MPC expects it to rise to around 3.2% by the end of the year, making it too early to begin cutting interest rates.

On the June figure alone, a rate cut might have appeared justified. However, renewed conflict in the Middle East has pushed Brent crude back towards $90 a barrel, raising the risk that higher energy costs will feed through into transport, manufacturing and household bills before spreading more broadly across the economy.

That uncertainty divided the MPC. Three of the nine members voted to raise the base rate to 4%, while the remaining six voted to keep it at 3.75%, signalling that they remain prepared to tighten policy if inflation proves more persistent than expected.

For landlords and property investors, the direction of travel matters more than this single decision. Interest rates are now more likely to remain higher for longer. If your investment plans assume significantly cheaper borrowing in the near future, now is the time to test whether they still work if mortgage rates remain elevated.

What the Held Bank of England Interest Rate Means for Your Buy-to-Let Mortgage

The Bank of England's decision to keep the interest rate at 3.75% means landlords should not expect Buy-to-Let mortgages to become cheaper any time soon. While lenders set mortgage rates based on a range of factors, including swap rates and market expectations, a higher-for-longer base rate generally keeps borrowing costs elevated.

That matters most if you're remortgaging rather than if you're already on a fixed-rate deal. Existing fixed-rate borrowers will see no immediate change to their monthly repayments, but landlords whose deals expire over the next 12 months are likely to refinance at much higher rates than they secured a few years ago. The sharp increase in mortgage rates seen earlier this year is a reminder that borrowing costs can rise quickly when inflation expectations change.

If your fixed term ends within the next year, calculate your repayments based on today's mortgage rates rather than hoping for an imminent rate cut. Planning ahead gives you time to review your finances, explore refinancing options and avoid an unwelcome shock when your current deal ends.

Section 24: The Hammer That Strikes Twice

Since April 2020, landlords who own rental property in their personal name have not been allowed to deduct mortgage interest before calculating their taxable rental profit. Instead, they pay tax on their rental income first and then receive a basic rate 20% tax reduction on their finance costs. The restriction is contained in Income Tax (Trading and Other Income) Act (ITTOIA) 2005 s.272A, the tax reduction is provided by s.274A, and the rules were introduced by Section 24 of the Finance (No. 2) Act 2015. HMRC explains how the calculation works in PIM2054.

When interest rates are held or rise, your mortgage bill most likely increases too. But your tax relief does not increase in line with your marginal tax rate. As borrowing costs rise, both your mortgage payments and your effective tax burden increase.

That's why Section 24 delivers a double hit. It squeezes your cash flow while also increasing the amount of tax you pay relative to the profit you actually keep.

A limited company is treated differently. Mortgage interest is deducted as a business expense before taxable profits are calculated, so higher borrowing costs reduce the company's taxable profit rather than simply increasing its expenses. That difference is one of the main reasons many landlords are now considering whether holding property through a limited company is the more tax-efficient option.

Will UK Interest Rates Go Up?

Honestly, the experts don't agree, and that disagreement is worth understanding. The market pricing baked into the Bank's own July report implies the interest rate could drift up towards 4.2% by late 2027 if inflation hangs around. Plenty of economists take the other view and expect holds for the rest of 2026, with cuts possibly returning in spring 2027 once energy prices start falling.

The sensible reading for a landlord is that a hold at 3.75% is the most likely near-term outcome, but the balance of risk leans upward. Plan for rates staying higher for longer and treat any cut as a bonus rather than the base case.

Conclusion

A 3.75% hold reads as calm on the front pages. But for a landlord with a mortgage and a higher rate tax bill, it's nothing of the sort. Borrowing is close to its recent highs and Section 24 taxes rent you don't fully keep. Sitting still has a price, and for a lot of landlords that price runs into thousands a year that a company structure simply wouldn't incur.

So, maybe it’s time you start thinking about incorporation too.