Are Mortgage Rates Going Up?

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What are mortgage rates?

How are mortgage rates determined?

Mortgage Rates Affected by Inflation

Fixed-Rate Mortgages vs Tracker Mortgages

How long should I fix my mortgage for?

This is a question that is continually asked by homeowners and prospective home buyers alike. The answer will entirely depend on how the market is performing at any particular time.

You can stay more up-to-date with what is happening in the market, including any changes to mortgage interest rates, government schemes and more, by taking a look at our “Mortgage Market Update” playlist on YouTube. We do these regularly to ensure people know what is going on.

What are mortgage rates?

Mortgage rates are a rate of interest in which a mortgage lender will charge you on the balance of your mortgage. This determines how much you will be paying on your monthly mortgage payments. If your mortgage rates are lower, you could be paying less per month.

How are mortgage rates determined?

There’s a variety of factors that can affect what your mortgage rates are. One that you definitely have the ability to control, is any personal factors that can help you qualify for a mortgage. These include things such as your credit score or deposit amount. The lower the risk, generally, the better the rates.

A trusted mortgage broker will be able to run through your personal circumstances in order to find you the best possible mortgage deal for what it is you are looking to achieve. Our mortgage advisors can search through 1000s of deals, including many specialist ones, on your behalf.

At the end of the day though, it all boils down to the current position of the market, the economy and the Bank of England base rate. An economy that is performing well will typically build up a higher demand for goods and services, with properties included in that.

Higher demand will typically mean that the Bank of England base rate rises, which in turn will see mortgage rates will climb up with them. Mortgage rates set by a mortgage lender, will sit at a percentage above the Bank of England base rate.

Whilst a stronger economy would mean people can afford more, mortgage lenders still only have so much money. As such, because the base rate is up, the cost of borrowing goes up for mortgage lenders, so mortgage rates go up too to cover the cost of a mortgage lenders own borrowing.

When the economy is not in a strong position, this will work the other way round, as people will be able to afford less. As such, interest rates will come down to try and encourage more people onto the property ladder, with the allure of potentially lower monthly mortgage payments.

Mortgage Rates Affected by Inflation

As mentioned above, one of the main factors that can affect mortgage rates, is the Bank of England base rate. Typically speaking, a mortgage lenders own rates will sit at a percentage above this. Once again, this means they can go up or down, depending on what the Bank of England base rate is.

Something else that can impact the Bank of England base rate, however, is inflation. The government have a set target that they like to reach, to keep the cost of living affordable. Unfortunately, this can sometimes go over their target.

In this situation, the cost of living may rise but unlike the usual standard where a strong economy means people can typically afford more, people may not be in great financial positions and able to do so.

This isn’t great news for people who have fixed-rates coming to an end, as it means they may be unable to afford further increases that they are likely set to inherit once their lower interest rate period has ended. It’s times like these where a trusted mortgage advisor is truly beneficial.

Fixed-Rate Mortgages vs Tracker Mortgages

The Bank of England base rate will fluctuate anyway, usually only very minimally. Tracker mortgages are a type of mortgage that follows this base rate, sitting at a percentage above and moving as and when the base rate does.

When the base rate is sitting low, this can be a great choice as you will have lower monthly mortgage payments. Unfortunately with this mortgage type, if interest rates were to rise, your monthly mortgage payments could change on a whim.

A better option for many, arguably one of the most popular mortgage types as well, is a fixed-rate mortgage. Fixed-rate mortgages allow you to lock-in to whatever the interest rate at that time is, for a certain amount of years (that you choose, typically 2-5 years).

This means that if the interest rate was currently 4% and you fixed in for 5 years, if the interest rates went up to 6% during the middle of your mortgage term, you’d remain comfortable in the knowledge that your monthly mortgage payments will remain the same.

In times of economic uncertainty, fixed-rates can provide financial certainty to a homeowner, allowing them to stress less about their home. The downside is that when your deal comes to an end, if interest rates have risen, you will inevitably be moving onto a higher interest rate anyway.

This can lead some homeowners, as we discussed in our article “Can You Remortgage Early?“, to actually remortgage much before their deal is due to end, paying an Early Repayment Charge, to fix-in on the current interest rates and protect their mortgage payments from future increases for a little bit longer.

How long should I fix my mortgage for?

This ultimately depends on how you predict interest rates changing, as well as your personal circumstances changing. As mentioned above, personal factors can also affect mortgage rates. If you have a higher deposit, opening you up to a lower loan-to-value, thus allowing you to access lower rates.

If you are in that situation, taking out a fixed-rate mortgage on that lower interest rate you have opened yourself up to. Providing the economy is also performing well at that time, you could choose to fix-in for 5 or even 10 years, to reap the benefits of your interest rates.

Of course this is circumstantial and that is a long time to wait. In 10 years, a lot could change, interest rates could drop lower than you were able to fix-in for, leaving you paying more than you otherwise had to if you had perhaps chosen a 2-year fixed-rate mortgage.

A dedicated mortgage broker will be able to best help you prepare for your mortgage and make a decision on what it is you are looking to achieve. They are experienced at what they do and have a wealth of knowledge that is there for you to draw from, if you need it.

Speak With a Qualified Mortgage Advisor

Interest rates can change on a dime, depending on the economy, the market and the Bank of England base rate. Coupled with your own personal factors, it can leave you uncertain of what could happen at any given time.

By booking in with us for remortgage advice if you’re at the end of your initial mortgage deal period, or first time buyer mortgage advice if you have never done this before, you will have a helping hand to find you the most suitable mortgage deal, with the most favourable mortgage rates.

We want what is best for everyone who gets in touch with us, so will work with you to ensure that you are protected against any potential future interest rate rises. If you’re concerned about any changes to the cost of living, a fixed-rate mortgage might be the best option for you.

Book a free mortgage appointment or remortgage review today, and we will see how we are able to help.

Written by
Malcolm Davidson
Managing Director of UK Moneyman Ltd.
MAQ & CeRER Qualified

8th April 2024

About the Author

Malcolm Davidson

Managing Director of UK Moneyman LTD

Malcolm is one of the UK’s most well-known and respected Mortgage Advisors. He is passionate about providing a 5* customer experience and he has also trained and mentored dozens of fellow Advisors in a career that is now in its third decade.

In addition to his day to day duties as Managing Director, Malcolm still gives out mortgage advice and feels lucky that his job is also very much his hobby.

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