Are Mortgage Rates Going Up? Current Interest Rate & Future Outlook

24th June 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 (this used to be referred to as 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 1.66% in May, compared to 1.74% in the same month last year (BoE data).

  • Five-year fixed-mortgage rates (75% LTV) averaged 1.98% in May, compared to 2.06% in the same month last year (BoE data).

What’s the present interest rate?

Image 6 - Bank of England Interest Rate Change FINAL (1)

The current interest rate is 0.75%.

The BoE’s Monetary Policy Committee (MPC) sit down once a month to decide what it should be. It will be reviewed again on 1st August.

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 increase?

It’s impossible to accurately predict when interest rates will rise. However, BoE governor Mark Carney warned in May 2019 that a modest recovery over the next three years will mean that interest rates will rise higher than expected due to inflation.

“If something like the forecast comes to pass, it will require interest rate increases over that period [two years] and more frequent than financial markets currently expect,” he said.

How does the Bank rate affect my mortgage?

The Bank rate usually affects whether mortgage interest rates go up or down. 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 mortgage rates going up or down?

Image 7 - Average Mortgage Rates FINAL (1)

We’ve looked at fixed-rate mortgages. They’ve come down slightly during the last year.

Two-year fixed-mortgage rates (75% LTV) averaged 1.66% in May, compared to 1.74% in the same month last year, according to the BoE.

And the average five-year fixed-mortgage rate (75% LTV) was 1.98%, compared to 2.06% in the same month last year, according to the same data.

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, a lender doesn’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.

Will Brexit affect interest rates?

In a word, yes.

In the minutes from its meeting in December 2018, the MPC stated that how it handles the Bank rate will “depend significantly” on precisely how we exit the EU. It noted that its monetary policy could move “in either direction”.

In other words, if the economy reacts well to Brexit then it may go ahead with the expected increase in the Bank rate. But if things look like taking a turn for the worse, then a cut may be on the way.

We should have a better idea of how the Bank rate is likely to move 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.

Is now a good time to get a mortgage?

With interest rates 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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