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Mortgage interest rates will affect how much you pay towards your mortgage each month.
So the higher the interest rate, the more you’ll pay every month.
How the base rate could affect your mortgage
Mortgage rates, like most interest rates in the UK, relate to the Bank of England base rate.
If the base rate goes up, interest rates usually go up by a similar amount. If the base rate goes down, interest rates usually go down.
If you get a fixed rate you will not need to worry about your interest rate changing.
It's easy to compare the interest rate for like-for-like mortgage deals. The lower the rate, the lower the interest.
But mortgage deals are complex. It's difficult to make like-for-like comparisons.
You need to consider:
interest rates - the amount of interest that's added to the loan
capital repayments - the amount of the borrowed capital you'll be paying back
upfront fees - some lenders will charge an upfront fee on some of their deals
incentives - some lenders will offer an incentive such as cashback on some of their deals
What you pay over your initial period
The total amount you'll pay back over the initial period takes into account interest, capital repayments and lender fees.
This is a good way of comparing mortgage deals. It makes it less likely that you'll choose a low rate deal that costs more during that initial period.
Average mortgage interest rates can vary as there are different kinds of mortgages, such as fixed, discount and tracker.
Usually the longer the fixed rate period, the higher the mortgage rate.
The size of your deposit and the loan to value ratio (LTV) will also affect the mortgage rate. A higher LTV will result in a higher interest rate.
Here are the average mortgage rates for all mortgage lenders in April 2021.
2 year fixed with 95% LTV (5% deposit) - 3.99%
5 year fixed with 95% LTV (5% deposit) - 4.08%
2 year fixed with 75% LTV (25% deposit) - 1.52%
5 year fixed with 75% LTV (25% deposit) - 1.74%
Standard variable rate (SVR) - 3.61%
There’s not one ideal mortgage rate, as it depends on many factors like:
how much you’re borrowing
the length of your mortgage term
the size of your deposit
if you pay an arrangement fee
the Bank of England base rate
A broker will take into account your circumstances and talk to you about what rate would work best.
The best mortgage rate will give you the lowest possible monthly repayments. Make sure you do not make up for a lower interest by paying more in other fees or costs.
The average interest rates for fixed rate mortgages have been going down over the last 5 years.
During the coronavirus pandemic, mortgage rates have gone up a bit, but they are still very low compared to historic rates.
According to the Bank of England, the average interest rate for 75% LTV mortgages in August 2022 was:
3.64% for 2 year fixed rate mortgage rates in comparison to 1.23% in the same month the year before
3.61% for 5 year fixed rate mortgage rates in comparison to 1.39% in the same month the year before
Mortgage rates, like most interest rates, are affected by the Bank of England base rate.
You'll often see the APRC alongside the initial rate on mortgage deals.
The initial rate only reflects the rate you’ll pay for that term of your mortgage.
The APRC shows the average interest rate calculated over the entire mortgage term. This includes your initial rate and the standard variable rate the lender will move you onto when your initial rate ends.
APRC is not as good at showing you what you pay and when.
This is because it covers the whole mortgage term including your initial rate and the SVR.
You're unlikely to stick with the same deal for your entire mortgage. You're likely to want to remortgage before going onto a higher rate SVR at the end of the initial term.