The Bank of England raised interest rates in September from 1.75% to 2.25%. The 0.5 percentage point increase marks the seventh increase since December 2021, when the bank rate stood at just 0.1%. It also puts the bank rate at its highest level in 14 years.
But the volatility of the pound sterling and market uncertainty as well as the increase in interest is raising the cost of mortgages. Major lenders including NatWest, Barclays, Halifax and Virgin Money closed deals and brought them back to market at higher prices.
According to data provider Moneyfacts, the average cost of two-year and five-year fixed-rate mortgages across all deposit levels yesterday was 6.11% and 6.02%, respectively. The average rates for these deals were above 6% in 2008 for two-year deals and in 2010 for five-year deals.
The average number of mortgage deals available now is 2,430, less than half the number recorded by Moneyfacts in December 2021 before interest rates started to rise.
But since mortgage rates change daily, it’s important to remain calm and objective. Moneyfacts says that many of the lenders’ mortgage withdrawals are temporary amid the current uncertainty.
Learn more about How to weather the mortgage storm.
Interest rates, mortgages…
So what does raising interest rates mean for the cost of mortgages so far?
The two million estimated homeowners in variable rate agreements, as base rate trackersThey will see an almost immediate increase in their monthly payments following the Bank’s recent rate increase to 2.25%. As an example, a tracking rate that increases from 3.5% to 4% will cost almost £60 extra per month on a £200,000 loan.
Remortgagers and first-time buyers will also face much higher mortgage costs when they settle, as noted above, since the cost of the new fixed rates has already factored in the latest price increase.
You can calculate the monthly cost of a mortgage against various interest rates with our mortgage calculator.
…house prices and stamp duty
In addition to more expensive mortgages, those looking to buy or move homes are dealing with property prices that are 9.9% higher than 12 months ago, according to Halifax. Its latest home price report, released today, puts the median cost of a property in September at £293,835.
However, September also marks the third month in a row that house price inflation has fallen (from a peak of 12.5% in June) and does not reflect recent market and political turmoil. Continued increases in borrowing costs are also expected to dampen growth in the housing market.
Stamp Duty Cuts Announced at Last month’s Mini Budget – which raised the zero-tax band on property purchases from £125,000 to £250,000 – means that a third (33%) of all houses listed on Rightmove are now also exempt from the tax.
Fixed rate mortgages
Many mortgage borrowers are opting for longer-term arrangements in a bid to achieve stability as interest rates rise and the economic outlook remains uncertain.
But while borrowers would historically pay more to fix it longer, the price gap is closing.
The difference in average cost is now less than 0.10 percentage point between a two-year and a five-year solution, according to Moneyfacts.
Why are interest rates going up?
The Bank of England’s Monetary Policy Committee (MPC) uses interest hikes as a means of cooling the economy and controlling rising inflation. The Consumer Price Index (CPI) measure of inflation is already at a soaring 9.9% in the 12 months to August against a government target of 2%.
If inflation continues to rise, some forecasters suggest the bank rate could hit 6% next year.
The Bank’s MPC is scheduled to meet on November 3 to decide on interest rates.
One of the main long-term drivers behind rising inflation is the cost of energy. The government has intervened by replacing the energy price limit – which was to raise energy prices to more than £3,500 a year from 1 October – with a cheaper energy price guarantee.
This will limit the cost of typical household bills to £2,500 a year for two years, with an additional £400 automatic discount applied to each household’s electricity bills between October 2022 and March 2023.
What are today’s mortgage rates?
With inflation rates and mobile banks on the rise, keeping track of mortgage costs is a challenge, especially now that rates change and transactions can be closed on a daily basis.
One easy way is to use our mortgage tables, powered by online mortgage broker, Trussle.
To find out what offers are available at today’s rates for the type of mortgage you’re looking for, you’ll need to enter your personal criteria in the table below. This is what you need to do:
- Select if the mortgage is for finance the purchase of a house or if it’s a remortgage for an existing property
- Enter the property value and the mortgage amount You need. This will automatically generate a percentage which is known as your ‘loan to value’. The lower the value of your loan, the cheaper the mortgage rates available
- Check the appropriate box if it is a buy-to-let or interest-only mortgage (you’ll need a payment strategy for these offers), or if you’re looking for a mortgage to finance a shared property property
- Finally, filter your search by the type of mortgage you want, say, a two or five year fix or tracker. The filter is set to a full 25-year mortgage term, but you can change this if necessary.
Here is a live table of mortgage offers available today.
What else do I need to know?
The mortgage deals that offer the lowest rates usually come with fees attached. You can choose to pay them up front or add them to the loan. To account for fee cost, sort results by ‘initial period cost’ (in the ‘Sort By’ dropdown menu).
Alternatively, you can sort the results by introductory rate, lowest rate, or monthly payment, even by the lender’s “tracking” rate that the offer will revert to at the end of the term.
While mortgage rates change daily, the cheapest ones are reserved for larger deposit amounts, typically 60% of the property value or more. And, in all cases, you will need a sufficient income and clean credit history be accepted for a mortgage.
If you want to see what your monthly mortgage payments might look like under different scenarios while overlapping with household bills, our mortgage calculator it will crack the numbers.
When can I start remortgaging?
Once issued, mortgage offers are typically valid for six months. If you’re looking to remortgage your current home, this means you can lock in a rate you see today, at no cost and with no strings attached.