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When Will Mortgage Rates Rise? Current Interest Rate & Future Outlook (Latest Update)

19th February 2019

Looking Up At The Bank Of England

This article was last updated on 19th Feb 2019. We’ll continue to update it on a regular basis.

There are lots of factors to take into account when considering whether to get a mortgage to buy a new home or remortgage to a more suitable deal.

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

One important factor, which is often closely followed and subject to much speculation, is the interest rate.

The interest rate of your mortgage deal contributes to how expensive that loan is going to be, so keeping on top of how interest rates are predicted to rise or fall is a smart thing to do.

We’ve previously explained why you should compare mortgages by the true cost (true cost = repayments + fees - incentives). But the biggest part of your payments will usually be due to the rate of interest charged by your mortgage lender.

Latest summary (19th Feb 2019):

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

  • Two year fixed mortgage rates have averaged 2.49% so far this month, up on last year but down on recent months.

  • Five year fixed mortgage rates have averaged 2.90% so far this month, also up on last year but down on recent months.

What’s the current interest rate?

Bank of England Interest Rate Change

The current interest rate set by the Bank of England is 0.75%.

The Bank of England’s Monetary Policy Committee (MPC) sit down once a month to decide what the base rate (sometimes called the ‘bank rate’) should be.

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

According to the Bank of England’s own forecasts, the base rate is only likely to increase slowly. They’ve suggested it will hit 1% by the end of 2019, 1.20% by the end of 2021, and 1.40% by the end of 2022. So if there is a knock-on effect on mortgage rates, it’s likely to be by approximately the same amount.

The MPC will next review the base rate on 21st March 2019.

How does the base rate impact mortgage holders?

The Bank of England’s base rate plays a big part in the interest rates we pay on our mortgage, as the rate influences how expensive it is for mortgage lenders to get the funds it needs in order to offer its mortgage deals.

If the base rate goes up, funding becomes more expensive, and it tends to mean that mortgage rates rise by a similar amount.

If you have a variable rate mortgage, then a change in the base rate is likely to have a direct and immediate impact your monthly repayments.

Tracker mortgages

With a tracker mortgage, your interest rate moves alongside the base rate.

For example, your tracker rate might be the base rate + 2%. As a result, your current rate would be 2.75%.

If the base rate increased from 0.75% to 1.25%, your tracker’s interest rate would increase by the same amount, to 3.25%.

Standard Variable Rate (SVR) mortgages

If you’ve lapsed onto your lender’s SVR (perhaps because your fixed rate period has ended) then your rate is almost certain to go up too - though with an SVR the lender isn’t limited by the size of the base rate change.

The lender might increase your rate by 0.75% for example, even though the base rate only moved by 0.50%.

Fixed rate mortgages

Things are a little different with a fixed rate mortgage, as your repayments won’t change during the fixed period, no matter what may happen to the base rate.

However, changes to the base rate will impact the rates available on remortgage deals available to you when the time comes to switch deals.

So as the base rate increases, it may be that the range of remortgage deals you have to choose from become more expensive too.

Are mortgage rates going up?

Average Mortgage Rates

Mortgage rates have, on average, increased slightly during the last year.

But interestingly, they’ve remained largely flat since the base rate increase in August, suggesting lenders are competing keenly for borrowers.

If the base rate does rise this year, and if lenders keep up this level of competition, the rates on new mortgage deals may not necessarily increase by the same amount.

Will interest rates be impacted by Brexit?

In the minutes from its meeting in December, the MPC pointed out that how it handles the base 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 base rate. But if things look like taking a turn for the worse, then a cut may be on the way.

Clearly, it’s an uncertain time, but we should have a better idea of how the base rate is likely to move once we know more about what Brexit will mean in practice, and how that impacts the economy.

We’ve covered this in more detail in our article looking at Brexit’s impact on house prices and mortgage rates.

Is now a good time to get a mortgage?

Whether now’s a good time to get a mortgage or remortgage to a new deal will depend on your own personal situation.

Interest rates are very low by historical standards, and it looks like they’ll continue to be even if there is another rate rise during 2019.

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

It’s important to not automatically assume the lowest interest rate will be the most competitive deal though - you’ll need to consider the true cost of the mortgage, which takes into account any fees and incentives that may come with it.

No matter whether you’re coming to the end of a fixed rate deal or you’re on a variable mortgage of some kind, it’s worth having a chat with a mortgage broker about your situation. They’ll advise how you can prepare yourself for future interest rate changes, ensuring you secure the most suitable deal for your circumstances.

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