Rising interest rates have transformed the lending landscape for landlords. Deals that looked affordable three years ago may now be unaffordable under today’s stress tests. For many, refinancing has become more complex, with lenders scrutinising cash flow and resilience like never before. Understanding how rates impact the commercial lending market is essential for landlords planning their next move.
The Shift in Stress Testing
High street and specialist lenders now test affordability at much higher notional rates. This means that even if the product rate is 6%, lenders may stress the loan as if rates were 8% or more. The result is reduced loan sizes and stricter affordability hurdles, even for landlords with strong track records.
Impact on Loan-to-Value Ratios
Many lenders have reduced maximum loan-to-value (LTV) levels in response to rate rises. Where 75% LTV was once common, 65% or even 60% may now be the ceiling. For landlords, this means either injecting more equity or accepting smaller loans, both of which can slow down portfolio growth or put pressure on refinancing plans.
Cash Flow Pressure
As borrowing costs increase, monthly payments consume a larger share of rental income. This leaves less headroom for maintenance, voids, or unexpected expenses. Lenders are factoring this into decisions, looking closely at liquidity buffers and business plans.
Commercial Lenders’ Response
Specialist and commercial lenders are adapting by offering more flexible structures, such as:
- Interest-only products to ease cash flow.
- Longer loan terms to spread costs.
- Covenant-driven facilities where flexibility is based on portfolio strength, not rigid stress tests.
These options can soften the blow of rate rises but must be managed carefully to avoid long-term over-leverage.
Practical Examples
- A landlord with 15 properties refinances from individual buy to let loans onto a single commercial facility, reducing total monthly repayments despite higher interest rates.
- An HMO investor secures an interest-only commercial loan, maintaining positive cash flow where a standard term loan would have failed affordability checks.
- A semi-commercial landlord negotiates a covenant-based facility, allowing higher gearing in exchange for liquidity buffers and reporting obligations.
Risks and Considerations
While flexible products help, higher rates inevitably increase exposure. Risks include:
- Refinance risk if rates rise further before the next renewal.
- Liquidity risk if cash flow margins are too thin.
- Portfolio stress if voids or arrears increase during high-rate periods.
Mitigation strategies include building reserves, maintaining conservative gearing, and fixing rates where stability is preferred.
The Role of NACFB Brokers
NACFB brokers help landlords navigate these challenges by identifying lenders offering realistic terms, structuring applications to highlight sustainability, and negotiating covenants that balance flexibility with security. Their market knowledge is crucial at a time when lender appetite varies widely.
Conclusion and Takeaway
Rising interest rates have reshaped the commercial lending market, pushing landlords to rethink strategy and adapt. While challenges are real, opportunities remain for those who prepare, present their case well, and work with the right broker to access tailored finance.
Next Steps
If you would like to explore your refinancing or funding options with an NACFB member broker, please complete the short form below and a consultant will be in touch.
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Published: 29 October 2025
