Latest on mortgage rates – fixed rates start to fall, despite another Bank of England base rate rise
The cost of fixed-rate mortgage deals has started to fall, despite the Bank of England's base rate rise last week, as the volatility caused by the Government's mini-budget in September looks to have eased. Variable-rate mortgages are rising, though – here's what you need to know if you're looking to get a new deal.
Mortgage rates rocketed as a result of uncertainty caused by the Government's mini-budget in September. However, after Chancellor Jeremy Hunt reversed many of the policies which shook the markets, including cancelling tax cuts and other spending plans, the factors that influence fixed mortgage rates have now stabilised. As a result, some brokers are predicting that the cheapest rates could soon fall below 5%.
Average rates on fixed mortgage deals have now come down, from 6.65% on 20 October for a two-year fix to 6.49% on 3 November, according to comparison site Moneyfacts.
The cheapest rates have also improved marginally since their recent highs around 25 October, more than a month after the mini-budget.
|Type of mortgage||20 September||25 October||8 November|
While fixed-rate mortgages are, to an extent, influenced by the Bank of England's base rate, they are also significantly affected by other factors, such as 'swap rates', which are long-term interest rate predictions.
Swap rates are in turn heavily influenced by the movement of 'gilt yields' (see our MSE analysis for a detailed breakdown of what gilt yields are and how they affect mortgages) – and as these are relatively stable right now, it's meant lenders have been able to offer better fixed-rate deals.
Mortgage broker Ray Boulger, of John Charcol, believes the cost of fixed-rate mortgage deals could continue to come down "slowly and steadily" – providing the Treasury's Autumn Statement on Thursday 17 November doesn't upset the financial markets.
Broker Aaron Strutt, of Trinity Financial, said he was hopeful that the keenest fixed-rate mortgages would drop below 5% "over the next few weeks", but added that lenders weren't under pressure to drop their rates quickly.
On the other hand, many variable-rate mortgages – such as tracker and discount products – are actually increasing in price, as they are more closely linked to the Bank of England's base rate, which was hiked by 0.75 percentage points on 3 November.
Right now, the cheapest tracker and discount mortgage deals are 2.95% and 3.29% respectively – still significantly cheaper than the best fixed-rate deals out there. Yet anybody who's been on a tracker mortgage over the past year would have seen their monthly costs increase NINE times over that period (the number of times the base rate has increased), as the table below shows.
|When the base rate rose||Monthly mortgage repayment|
|November 2021 (0.1% base rate)||£572|
|December 2021 (0.25% base rate)||£583|
|February 2022 (0.5% base rate)||£600|
|March 2022 (0.75% base rate)||£617|
|May 2022 (1% base rate)||£636|
|June 2022 (1.25% base rate)||£654|
|August 2022 (1.75% base rate)||£692|
|September 2022 (2.25% base rate)||£731|
|November 2022 (3% base rate)||£791|
How variable-rate mortgages differ from fixed-rate deals
As outlined above, variable deals are almost always cheaper than fixed-rate mortgages (and this remains the case even now). However, the risk with variable-rate mortgages is that the interest rate you pay can change over the course of the deal (for example, two, three, five years), unlike a fixed-rate mortgage where the rate you pay remains set for the duration of the lock-in period.
See how variable-rate mortgages work in our What mortgage to choose guide, but in brief:
- Tracker mortgages. Here, your mortgage rate tends to track a 'fixed economic indicator' (normally the Bank of England's base rate). If this indicator goes up, your mortgage rate goes up.
- Discount mortgages. These deals usually offer a discount off of a lender's standard variable rate (SVR – the rate your mortgage reverts to once your current mortgage deal ends), so if your lender's SVR goes up, so will your rate. However, SVRs don't always go up when the base rate increases, so a base rate rise may not necessarily affect your costs as much.
If you're unsure about what mortgage deal to get next, seeing a qualified mortgage broker is vital. They can do the 'finding a deal' work for you and have details of most lenders' acceptance criteria, as well as access to deals exclusively for them. See our full help on how to find a good broker.
My mortgage deal is ending soon
The risk of moving on to a new fixed-rate deal now is that if interest rates continue to fall, it might've been worth waiting a bit longer before locking in. And if you want to ditch a new fixed deal after it's actually kicked in, you'll most likely have to pay a hefty early repayment charge (see our Remortgage fees guide for how these early repayment charges, or ERCs, work).
One option is to temporarily move on to a variable-rate mortgage, as about 40% of tracker and discount mortgages don't come with an ERC, meaning you may be able to ditch a variable-rate deal penalty-free at a later date when (and if) you're ready to fix. Even if a variable deal does come with an ERC, it's worth checking with the lender if it would be willing to waive the ERC if you later decided to fix with it.
However, a risk in doing this is that with the base rate forecast to rise further over the coming months, the cost of any variable-rate deal you move on to might increase in price (though you'd probably still be paying a cheaper interest rate than you would be on a fix).
My mortgage deal isn't ending for a few months
Here you've got extra wriggle room, as there's more time to wait to see if mortgage rates come down.
Yet if your current deal isn't ending for a while, but you'd still rather secure the rate that is on offer today (perhaps you think interest rates might go up in future), in many cases you should be able to do that. Most lenders let you secure today's rate three months in advance of your existing deal ending, while an increasing number even allow you to do this up to six months in advance.
However, there are issues to consider if you're locking in a new deal months in advance. We explain these in detail in our long lock-in help, but in brief:
- Do you have to pay any upfront fees? Typically there are two potential fees: a booking fee and an arrangement fee. Booking fees for new mortgage deals are increasingly rare, but you'll probably have to pay an arrangement fee, which'll normally set you back about £1,000. You can often ask for this to be added to your mortgage balance, which'll mean you won't have to pay it upfront – but doing this means you will have to pay interest on it, so there's a trade-off.
- Could you ditch this deal penalty-free? Securing a new rate now to start in a few months comes with the risk that lower interest rates could appear in the meantime, meaning it would have been better had you waited. So if you are securing a new rate in advance, check with the lender (or a broker) whether you could ditch the secured rate before it kicked in penalty-free in the event interest rates did come down (in other words, whether you could get your arrangement fee refunded).
You have two options for getting a mortgage: switching to a new deal with a new lender (known as remortgaging) or getting a different deal with your existing lender (known as a 'product transfer').
In normal times, finding the cheapest deal is usually done by scouring the wider mortgage market and remortgaging with another lender. Yet in recent months, with interest rates having climbed rapidly, the rate gap between product transfer and remortgage deals has narrowed – in some cases, it's actually been reversed.
For example, on a mortgage with a 60% loan-to-value (LTV – the proportion of the property's value you're borrowing as a mortgage), Nationwide's best two-year fixed rate for new borrowers is 5.84%, while its best rate for existing borrowers is 4.84% (which is also cheaper than the best two-year fixed rate for new borrowers on the wider market).
This table shows how the interest rates on some of the major mortgage lenders' product transfers (for existing borrowers) compare with the rates on their remortgage deals (for new customers). In 65% of cases, rates for existing customers were lower than for new customers.
|Lender||60% loan-to-value||75% loan-to-value||90% loan-to-value|
|Existing customer||New customer||Existing customer||New customer||Existing customer||New customer|
|Skipton Building Society||5.85%||6.07%||5.97%||6.12%||6.89%||6.26%|
|Yorkshire Building Society||N/A||N/A||5.98%||5.63%||6.31%||5.72%|
According to mortgage broker Ray Boulger, product transfers are becoming an increasingly viable option, and he expects them to become more popular with borrowers over the coming months. There are two key advantages.
- Fees are often lower with product transfers. You'll normally have to pay an arrangement fee, but that's often it. Legal fees are uncommon and you're unlikely to be charged a valuation fee (though this can be the case with remortgages too – so do check).
- There's not normally an affordability assessment. So if you're not borrowing more money, this means you could be accepted for a new rate almost instantly. With remortgaging, as affordability assessments form a key part of the switching process, you might struggle to be accepted with a new lender, particularly if you're on the border of affordability.
Securing a new rate via a product transfer can often be done quickly and easily online (or by phone or through a broker).
Even where you can find a rate that is slightly better via remortgaging, lower fees and ease of acceptance might still make it more worth going for a product transfer – though it's always best to talk through your options with a mortgage broker. See our Cheap mortgage finding guide for tips on finding a good broker.
- Benchmark what type of rates are out there. Our Mortgage Comparison tool will help you see what's available currently and compare it against what you're paying now.
- Dig out the details of your current mortgage. Such as... What's the rate? What type is it? When's the intro deal over? When must it all be repaid? Will you be penalised to switch deals? What's the loan-to-value (LTV)?
- Check out your existing lender's cheapest deal. Use this rate as a benchmark to beat.
- If you've savings, use them to bag a cheaper deal. If you still owe more than 60% of your home's value on a mortgage, the more you can do to drop an LTV band, the cheaper your remortgage will be.
- Check out the size of any possible savings on our mortgage calculators. Stick your digits in here... Basic mortgage calculator – including what it'll cost | Compare two mortgages | Compare fixed-rate mortgages | 'How much can I borrow?' guesstimator.
- If you're thinking of applying, it's all about whether you'll be accepted. Lenders need to check if you're 'affordable' and whether you could meet repayments if rates shot up. So see our 17 ways to boost your mortgage chances, and don't forget to check your credit report for free. Then read up on how to improve your creditworthiness.
- If you're serious, speak to a broker – they're currently more important than ever. See our full help on how to find a good broker.