What’s The Latest With UK Mortgage Rates?

The Bank of England raised interest rates on 15 December from 3.0% to 3.5%. The 0.5 percentage point increase marked the ninth rise since December 2021 when Bank rate stood at just 0.1%. It put the Bank rate at its highest level since 2008 and has applied further upward pressure on the cost of borrowing.

Volatility and uncertainty

Mortgage costs also rocketed following last September’s ill-fated mini-Budget due to sterling volatility and market uncertainty. Major lenders including NatWest, Barclays, Halifax and Virgin Money all pulled deals and brought them back to the market at higher prices.

The appointment of Rishi Sunak as Prime Minister helped to settle the markets and the average cost of fixed rate mortgages has been continuing to come down from its peak.

Average costs of popular deals

According to our mortgage partner, Better.co.uk (formerly Trussle), the average cost of fixed rate deals across all deposit levels today stands at 5.07% (two-year fix), 4.97% (three-year fix) and 4.76% (five-year fix). This compares to highs of more than 6.50% in October.

Better.co.uk says the most competitive deals are 4.23% for a two-year fix and 4.33% for a five-year. Currently, long-term fixes are cheapest with the best 10-year fixed rate deal priced at 4.04%.

The average two-year tracker rate today stands at 4.11%, while a typical standard variable rate (SVR) is 6.33%, according to Better.co.uk.

Its data also shows that the average approved loan amount as of January 2023 is just over £200,000, against an average property value of £335,000.

At present, there are around 4,000 residential mortgage deals on the market. The number has increased since last Autumn’s mini-Budget when it plummeted to 2,560. Yet it’s still a far cry from the 5,300-plus deals on the market in December 2021, before interest rates began to climb.

A settling political landscape alongside a slight fall in the annual rate of inflation to 10.7% could ease pressure on the Bank of England to raise interest rates further in 2023. We’ve rounded up some expert opinion on how this could affect the mortgage market.

The next decision to be taken by the Bank’s Monetary Policy Committee (MPC) is scheduled for 2 February 2023.

Interest rates and mortgages

So what do rising interest rates mean for the cost of mortgages so far?

The estimated two million homeowners on variable rate deals, such as base rate trackers, will see an almost immediate rise in their monthly repayments following the latest Bank rate rise to 3.5%. As an example, a tracker rate rising from 4% to 4.50% costs around an extra £50 a month on a £200,000 loan.

Those on fixed-rate deals, where the interest rate is locked in for, say, two or five years, won’t see any difference in their monthly payments. But when their deal comes to an end, they may find they have to pay a higher rate for their next mortgage because of recent increases in the main Bank rate.

Work out the monthly cost of a mortgage against various interest rates with our Mortgage Calculator.

House prices and Stamp Duty

While still beyond the realms of affordability for many, UK house prices are starting to fall. The average asking price of a property listed on Rightmove in December stands at a heady £359,137, according to the website’s latest figures.

While this is 5.6% higher than last December, it’s a marked slowdown from the annual growth rate in November which was recorded at 7.2%.

On a monthly basis, asking prices have dropped by 2.1%.

Tim Bannister at Rightmove, said: “The price drop is an understandable short-term reaction to the economic turmoil we saw in late September and October, before things began to settle down.”

Rightmove expects average property prices to drop by a further 2% during the course of this year.

Stamp Duty cuts announced in the mini-Budget raised the nil-rate band on the purchase of a property from £125,000 to £250,000. While u-turns were made on the other tax breaks announced under former Prime Minister Liz Truss, this one has remained in place.

Why are interest rates rising?

The Bank’s MPC uses interest hikes as a means of cooling the economy and taming rising inflation. The Consumer Prices Index (CPI) measure of inflation rose to a heady 11.1% in the 12 months to October. And while in November it eased back to 10.7%, these figures should be set against the government’s target of 2%.

If inflation remains stubbornly high, some forecasters are suggesting that Bank rate could reach 4.5% this year.

One of the main longer-term drivers behind rising inflation is the cost of energy. Under regulator Ofgem’s energy price cap, annual bills for a typical-use household would have rocketed to £3,549 from 1 October, and further still to £4,279 from 1 January 2023.

But the government has superseded the price cap with its own ‘cheaper’ Energy Price Guarantee (EPG). This limits typical annual bills to £2,500 until 31 March 2023, followed by £3,000 from 1 April 2023 for a further 12 months.

What mortgage deals are available?

With upwardly-mobile Bank and inflation rates, keeping track of mortgage costs is increasingly challenging – especially when rates change, and deals can be pulled, on a daily basis.

One simple way is use our mortgage tables, powered by Better.co.uk.

To find out what deals are available at today’s rates for the kind of mortgage you’re after, you’ll need to enter your personal criteria into the table below. Here’s what to do:

  • Select whether the mortgage is to fund a house purchase or if it’s a remortgage for an existing property
  • Enter the property value and the mortgage amount you require. This will automatically generate a percentage which is known as your ‘loan to value’. The lower your loan to value, the cheaper the mortgage rates available
  • Tick the relevant box if it’s a buy-to-let or interest-only mortgage (you’ll need a repayment strategy in place for these deals), or if you’re looking for a mortgage to fund a shared ownership property
  • Finally, filter your search by the type of mortgage you want, for example a two- or five-year fix or tracker. The filter is set to a complete mortgage term of 25 years but you can change this if required.

Here’s a live table of the mortgage deals available today.

What else do I need to know?

Mortgage deals offering the cheapest rates usually come with fees attached. You can opt to pay these upfront or add them to the loan. To factor in the cost of the fee, order your the results by ‘initial period cost’ (in the ‘Sorted by’ dropdown).

Alternatively, you can order results by initial rate, lowest fee or monthly repayment – even by the lender’s ‘follow on’ rate that the deal will revert to at the end of the term.

The very cheapest are reserved for bigger deposit amounts, usually of 60% of the property value or more. And, in all cases, you will need a sufficient income and clean credit history to be accepted for a mortgage.

If you want to see what your monthly mortgage payments might look like in different scenarios while overlaid with household bills, our Mortgage Calculator will crunch the numbers.

When can I start a remortgage?

Once issued, mortgage offers tend to be valid for six months, although a handful of lenders such as Skipton Building Society honour offers for up to 12 months. If you are looking to remortgage your current home, this means you can lock in a rate today – at no cost and with no strings attached.

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