Are mortgage rates going up? Current interest rate & predictions

11th December 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 at 1.44% in November, compared to 1.75% in the same month last year [BoE data].

  • Five-year fixed-mortgage rates (75% LTV) averaged 1.69% in November, compared to 2.02% in the same month last year [BoE data].

What’s the current interest rate?

Bank of England interest rates December

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

The BoE’s Monetary Policy Committee (MPC) decides what the rate should be.

In November, seven of its members voted to keep the interest rate on hold, while the remaining two voted for a 0.25% rate cut.

The next Bank of England interest rate meeting will be on 19th December 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?

Given that two members of the MPC voted to reduce interest rates back to 0.50% in November, you could argue that a rate cut is more likely than a rise.

Reflecting on this news, on 7th November Samuel Tombs, chief UK economist at research consultancy Pantheon Macroeconomics, noted that investors currently see a 50/50 chance of a rate cut in the next nine months.

However, he still predicted that they will stay at 0.75% until the second half of 2020 before rising gradually.

It’s currently difficult to predict which way they'll go in the future, as a lot depends on the timing and smoothness of the UK’s proposed exit from the European Union.

In November the MPC noted that it will “monitor closely the responses of companies and households to Brexit developments” when deciding what to do with interest rates.

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?

mortgage rates Nov 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 steadily during the last year.

Two-year fixed-mortgage rates (75% LTV) averaged 1.44% in November, 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 1.69%, compared to 2.02% 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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