The fourth quarter of 2017 saw buy-to-let lenders absorbing more costs to keep their rates competitive, according to the latest Buy-to-Let Mortgage Costs Index from Mortgages for Business.

The analysis shows that the underlying cost of funds rose in Q4 2017. In particular, swap rates remained elevated, coinciding with the increase in the base rate. By the end of 2017, two, three and five-year swaps, on which fixed rate mortgages are typically based, were higher than at the start of 2017.

However, buy-to-let lenders, whose margins have been diminishing since July 2016, chose not to pass on the increases to borrowers. Instead, it seems that they opted to squash their margins further, as they fought for new customers in light of fast-approaching year-end lending targets. The data shows that, between the beginning and end of 2017, average lender margins over swaps had declined by 0.4%.

Steve Olejnik, the COO of Mortgages for Business, commented: “I doubt that lenders will consider lowering rates again. If anything, I would expect them to find ways of making up for the lost margins, particularly given that overall buy-to-let lending looks set to dip this year.”