The Bank Held Again. But the Swap Market Tells a Different Story.
On 30 July 2026, the Bank of England voted 6-3 to hold the base rate at 3.75%. That is the fifth consecutive hold. The headlines said "no change." But there is something more interesting happening underneath.
The 5-year SONIA swap rate is currently sitting at 4.38% — above the base rate. That gap matters. SONIA swaps are what the banks use to price their fixed-rate mortgages. The fact that the swap rate is higher than the base rate tells you what the market actually believes: that rates are not going to fall as fast or as far as people hope.
When rates peaked at 5.25% in August 2023, everyone assumed we'd be back to 2-3% by now. We are not. The base rate has come down to 3.75%, but it has stalled. The swap market is pricing in rates staying elevated into 2027, with only modest cuts thereafter.
Bank of England Base Rate — History and Market Expectations
The rate peaked at 5.25% in August 2023. Cuts have slowed. Markets now expect rates to remain close to 3.75% through end of 2026.
Sources: Bank of England · BlueGamma SONIA data · HomeOwners Alliance forecasts
The Renters Rights Act Changed Everything for Landlords
On 1 May 2026 the Renters Rights Act came into force. Section 21 — the "no-fault eviction" route that landlords have relied on for 30 years — is gone. Getting a property back now requires one of the Section 8 grounds, evidence, and patience. For landlords with difficult tenants, the practical implications are significant.
The numbers reflect it. An Allsop survey of over 1,000 landlords found that 30% plan to sell their entire portfolio, with a further 18% planning to reduce it. That is nearly half the market either leaving or shrinking. Buy-to-let purchase loans fell 14.9% in Q1 2026, even as remortgaging activity rose — landlords are holding what they have but not buying more.
Then there is the yield problem. Average UK BTL yields sit at around 5.5%, but mortgage costs for buy-to-let are running between 4% and 5.75%. Once you factor in maintenance, voids, lettings management and now the added legal complexity of the Renters Rights Act, the margin is thin. For London landlords, gross yields average closer to 4.2% — barely ahead of borrowing costs before any costs are deducted.
Property Yield Comparison — UK 2026
Gross yield ranges across different strategies. BTL mortgage rates currently run 4–5.75%, leaving thin margins in many locations.
Sources: Fox Davidson 2026 yield data · LoopNet commercial yields
Buy-to-Let in 2026
- Section 21 abolished — eviction now complex
- 4-month notice required before selling
- London yields 4.2% — barely above mortgage costs
- BTL purchase lending down 14.9%
- 48% of landlords reducing or exiting
- Tax changes have eroded net returns
Commercial in 2026
- Tenant pays insurance, rates, repairs (FRI lease)
- 10+ year leases — no annual tenancy uncertainty
- Landlord-friendly possession via County Court
- Yields typically 5–12% gross
- Councils and pension funds selling below value
- PD conversion adds 3-4x uplift potential
The Country Needs 367,000 New Homes a Year. It Is Building Half That.
The government's own calculation of England's housing need is 367,000 new homes per year. In the twelve months to March 2026, 204,500 homes were built. That is a shortfall of over 160,000 homes — in a single year.
Planning permissions for new homes hit a 15-year low. Construction starts fell 4% in Q1 2026 alone, and are down 3% year on year. Construction firms represent 16% of all insolvencies in England and Wales. Traditional housebuilding is not going to close this gap. It is getting worse.
This is the structural backdrop behind everything. The demand for housing is not going away. Rents have grown 18.3% nationally over the last three years (Savills). In the North East, annual rental growth is running at 6.5%. The shortage is real, persistent, and getting more acute — and conventional solutions are not working.
New Homes Built vs Government Target — England
The gap between delivery and need has widened every year. Traditional housebuilding alone cannot close it.
Sources: MHCLG housebuilding statistics · Savills Housing Supply Q1 2026
Vacant Commercial + Housing Shortage + Permitted Development = The Window
UK office vacancy rates are sitting at around 6% nationally. Retail vacancy in secondary and tertiary locations is running at 12.4%. Councils that borrowed heavily to invest in commercial property during the low-rate era are now selling at prices that reflect commercial values — not residential potential. Pension funds, who hold large amounts of secondary office and retail stock, are offloading.
This creates a very specific arbitrage. You can buy a Class E commercial building at commercial values — per square foot prices a fraction of residential — and convert it to residential use via permitted development. The 3 to 4 times value uplift is not theoretical. It shows up in every project we work on.
The Class MA permitted development rights that came into force in August 2021 allow any qualifying Class E building — shops, offices, restaurants, banks, gyms, clinics, nurseries — to be converted to residential use. The prior approval process takes 56 days. The Local Authority has very limited grounds to refuse. Central government put these rights in place specifically because they need the housing and they know the planning system cannot deliver it quickly enough.
Why This Window Will Not Stay Open
When rates eventually fall further — and they will — several things happen at once. Mortgage availability improves. Residential demand picks up. House prices recover. Competition for deals increases. And crucially, commercial property prices start to recover too, as the yield gap narrows and institutional money returns.
The opportunity right now is built on two things being true simultaneously: commercial property is undervalued (because rates are high and income-based investors are pricing off high yields) and residential demand is structural and persistent (because we are not building enough homes). When one of those conditions changes, the gap tightens.
The swap market is telling you that 4%+ borrowing costs are here for a while. That is not good news for anyone holding residential property with a mortgage. But if you can buy commercial at distressed prices, convert via PD, and either sell residential units or refinance at the higher residential value, the rate environment is less of an obstacle and more of a feature — it is precisely because rates are elevated that the commercial prices are where they are.
Base Rate vs 5-Year SONIA Swap Rate
The gap between the base rate and the 5-year swap (what banks use to price fixed lending) shows the market expects rates to stay elevated. This keeps commercial asset prices suppressed — and the conversion opportunity open.
Sources: Bank of England · BlueGamma SONIA data
