Are mortgage rates going up? Current interest rate & predictions

12th September 2019

Looking Up At The Bank Of England

There’s a lot to consider when you’re thinking about getting a mortgage, whether to buy a new home or remortgaging to get a better deal.

House prices, the economy, and personal circumstances all play a crucial role in your decision.

One really important thing to bear in mind is the Bank of England’s (BoE) interest rate - also known as the Bank rate and sometimes the base rate.

When it goes up, mortgage lenders usually increase their rates by about the same amount. This means you could suddenly find yourself having to pay more each month.

We’ve already explained why you should compare mortgages by their true cost (true cost = repayments + fees - incentives). Once you’ve done that, bear in mind that the largest portion of what you pay every month (your repayment) can go up or down depending on the rate of interest your mortgage lender charges.

So it’s vital to consider the impact of interest rate changes on your mortgage.

Here’s a summary of the latest interest rates:

  • The BoE’s interest rate is currently 0.75%, and has been at this level since August 2018.

  • Two-year fixed-mortgage rates (75% LTV) averaged 1.64% in August, compared to 1.75% in the same month last year (BoE data).

  • Five-year fixed-mortgage rates (75% LTV) averaged 1.92% in August, compared to 2.03% in the same month last year (BoE data).

What’s the current interest rate?

Bank of England interest rate (Jan 2008 - Aug 2019)

The BoE announced in August 2019 that the current interest rate is staying at 0.75%.

The BoE’s Monetary Policy Committee (MPC) decide what the rate should be. The next Bank of England interest rate meeting will be on 19th September 2019.

What influences the interest rate?

The MPC changes the interest rate to meet Government targets to keep inflation low and stable.

The rate was cut to a record low of 0.50% following the financial crisis of 2008/9, for example. It stayed at the same level for years before being cut to a new low of 0.25% in August 2016 following the Brexit vote. It’s since been increased twice to its present level of 0.75%.

When will interest rates rise or fall?

It’s difficult to accurately predict when the Bank of England’s interest rate will rise or fall. This is especially the case at the moment, as a lot depends on the UK’s proposed exit from the European Union on 31st October.

Case in point, on 1st August Paul Dales, Chief UK Economist at research consultancy Capital Economics made two interest rate predictions: They will rise to around 1.0% over the next couple of years if the UK leaves with a deal, or they will be cut to at least 0.25% if there is a no deal Brexit.

The latest comments from the MPC strengthen the view that a lot depends on Brexit.

On the same day, the BoE said in its quarterly Inflation Report that “Assuming a smooth Brexit and some recovery in global growth” there will be “increases in interest rates, at a gradual pace and to a limited extent”.

However, the BoE added that the interest rate could move “in either direction” depending on Brexit’s impact on “demand, supply, and exchange rate”.

How does the Bank rate affect my mortgage?

The Bank rate usually affects whether mortgage interest rates go up or down, including even the lowest mortgage interest rates. This is because the rate influences how expensive it is for lenders to get the money they need to offer mortgages.

If the Bank rate goes up, funding for lenders becomes more expensive, and they tend to pass on the cost to borrowers. This is when you can suddenly find yourself paying more for your mortgage every month.

Are average mortgage rates going up or down?

Average mortgage rates 75 LTV Jan 2014 to Aug 2019

It’s equally hard to make accurate mortgage rate predictions. So we’ve looked at average fixed-rate mortgages over the last few years to highlight the general trend. They’ve come down slightly during the last year.

Two-year fixed-mortgage rates (75% LTV) averaged 1.64% in August, compared to 1.75% in the same month last year, according to the BoE.

And the average five-year fixed-mortgage rate (75% LTV) was 1.92%, compared to 2.03% in the same month last year, according to the same data.

Will mortgage rates go down further? It’s difficult to forecast, but there isn’t room for them to fall much more.

How high can mortgage interest rates go?

With the current economic uncertainty, you may be wondering what’s going to happen to your mortgage.

How much you pay depends on what type of mortgage you’ve got and whether you’re already on a good mortgage interest rate.

Variable rate mortgages

If you’ve got a variable rate mortgage, a change in the Bank rate is likely to have a direct and immediate impact on your monthly repayments.

Tracker mortgages

With a tracker mortgage, your interest rate changes with the Bank rate. So if your tracker rate is the Bank rate + 2%, for example, your current rate would be 2.75%.

Standard Variable Rate (SVR) mortgages

If you’ve lapsed onto your lender’s SVR (perhaps because your fixed-rate period has ended) your rate is almost certain to go up.

With this type of mortgage, lenders don’t have to stick to the change in Bank rate. They could increase your rate by 0.75%, for example, even though the Bank rate only went up by 0.50%.

Fixed-rate mortgages

If you’re worried about sudden hikes in your monthly repayments, then this is likely to be the mortgage for you. What you pay stays the same during the fixed period, no matter what happens to the Bank rate.

Wait and see on Brexit?

Predicting where the Bank rate, and therefore mortgage rates will move, should be easier once we know more about what Brexit will mean in practice, and how that impacts the economy.

What we do know is that Brexit has already had a significant impact on house prices and mortgage rates.

Regardless of whether interest rates go up or down, they’re still historically very low. To put the current rate of 0.75% into context, the Bank rate was 15% in the summer of 1990.

Is now a good time to get a mortgage?

With current mortgage interest rates being so low, you may be wondering whether now’s a good time to get a mortgage or remortgage to a new deal.

It really all depends on your own personal situation.

If you want to secure the absolute lowest rate possible to protect your repayments against any imminent rate increases, then considering a fixed-rate deal could be a smart move.

But don’t just pick the lowest interest rate assuming it’s the cheapest mortgage.

If you want to find the most competitive deal you need to consider the true cost of the mortgage, which takes into account any fees and incentives that come with it.

If you’re thinking about fixing your mortgage rate now, wondering whether you’re on a good mortgage interest rate, or thinking when’s the best time to buy a house to suit your own needs, it’s worth having a chat with a mortgage broker. They’ll help you prepare for future interest rate changes and make sure you get a deal that suits you best.

Bear in mind

Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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