The Bank of England raised interest rates in May from 4.25% to 4.50%. The 0.25 percentage point increase marks the 12th rise since December 2021 when Bank rate stood at just 0.1%. It puts Bank rate at its highest level since 2008 and has applied further upward pressure on the cost of borrowing.
The next Bank rate decision will be announced on 22 June 2023, when rates are widely expected to rise again.
Volatility and uncertainty
Mortgage rates suddenly rocketed after last September’s mini-Budget which triggered market uncertainty and sent the pound crashing to historic lows. At the time, major lenders including NatWest, Barclays, Halifax and Virgin Money, all pulled deals and brought them back to the market at higher prices.
While mortgages costs have undergone a correction since then, lenders have been putting up the cost of deals as interest rates continue their relentless climb in the face of high inflation.
Average and best costs of popular deals
According to our mortgage partner, Better.co.uk, the average cost of a two-year fixed rate deal today stands at 5.27% which compares to 5.25% yesterday. Average costs of a three-year deal have risen above 5% to 5.14%, while a typical five-year deal today is priced at 4.89%.
While mortgage costs have recently been rising on a daily basis, they currently still compare favourably to highs of more than 6.50% seen in October 2022.
Better.co.uk says the most competitive deals are 4.49% for a two-year fix, 4.74% for a three-year, and 3.94% for a five-year deal. The average 10-year fixed rate stands at 4.84%
The average two-year tracker rate is up to 4.88%, which compares to a current 4.64% for the best deal of its kind.
Lenders’ typical standard variable rate (SVR) stands at 7.32% today, which compares to 7.26% last week, according to Better.co.uk. Average SVRs a year ago in May 2022 were just 4.53%.
On 1 May, there were 5,264 residential mortgage deals on the market. However, with a number of lenders withdrawing their fixed-mortgage products amidst fears of a rise in the Bank of England Bank Rate on 22 June, the number now stands at 5,018 according to Moneyfacts..
The number of available mortgages had plummeted to around 2,560 following last Autumn’s mini-Budget.
Interest rates and mortgages
So what do rising interest rates mean for the cost of mortgages so far?
The estimated 1.4 million homeowners (according the UK Finance) on variable rate deals, such as base rate trackers, will see an almost immediate rise in their monthly repayments following the latest Bank rate rise to 4.50%.
As an example, a tracker rate rising from 4.75% to 5% costs around an extra £30 a month on a £200,000 loan taken over 25 years, with monthly repayments rising from £1,140 to £1,170.
Those on fixed-rate deals, where the interest rate is locked in for, say, two or five years, won’t see any difference in their monthly payments. However, when the deal expires, available mortgage deals are likely to be much more expensive.
You can work out the monthly cost of a mortgage against various interest rates with our Mortgage Calculator.
House prices and Stamp Duty
The latest major house price indices are all reporting falls in the value of UK property.
Halifax’s latest house price report published on 7 June showed a fall in annual house prices for the first time since 2012. The cost of an average home in May (£286,532) was 1% lower than in May last year. On a monthly basis, prices remained flat, said Halifax.
Nationwide’s house price report, published on 1 June, showed the rate of annual inflation dropping to -3.4% in the 12 months to May, steeper than the -2.7% posted in April. On a monthly basis, prices declined by 0.1% according the lender, taking average UK property prices to £260,736.
Zoopla reported price falls of 1.3% in the six months to April, although still reports positive annual inflation of 1.9%.
Stamp Duty cuts announced in last Autumn’s mini-Budget raised the nil-rate band on the purchase of a property from £125,000 to £250,000. While u-turns were made on the other tax breaks announced under former Prime Minister Liz Truss, this one remained in place.
Why are interest rates rising?
The Bank’s MPC uses interest hikes as a means of cooling the economy and taming rising inflation. The Consumer Prices Index (CPI) measure of inflation fell to 8.7% in the 12 months to April – a steeper fall than many forecasters expected, but still painfully high, due largely to rising costs in the food sector.
Inflation peaked in October at 11.1% but had since largely been falling. The government’s inflation target for the Bank of England is set at 2%.
One of the main longer-term drivers behind rising inflation is the cost of energy. Since 1 April, 2023 the energy price cap, as set by regulator Ofgem has been pegged at £3,280. The cost refers to an annual bill for a dual fuel household paying by direct debit based on typical consumption.
However, the government’s own Energy Price Guarantee (EPG) which was implemented to protect households from rocketing energy costs, applies instead. Currently, the EPG is set at £2,500 a year.
But Ofgem has confirmed that the energy price cap will fall as of 1 July from £3,280 to £2,074. As this is below the level of the EPG, the price cap will once again apply and determine the cost of energy for households in England, Wales and Scotland until the end of September. A new cap will then take effect from 1 October.
What mortgage deals are available?
With upwardly-mobile Bank rates, keeping track of mortgage costs is challenging – especially when rates change, and deals can be pulled, on a daily basis.
One simple way is use our mortgage tables, powered by Better.co.uk.
To find out what deals are available at today’s rates for the kind of mortgage you’re after, you’ll need to enter your personal criteria into the table below. Here’s what to do:
- Select whether the mortgage is to fund a house purchase or if it’s a remortgage for an existing property
- Enter the property value and the mortgage amount you require. This will automatically generate a percentage which is known as your ‘loan to value’. The lower your loan to value, the cheaper the mortgage rates available
- Tick the relevant box if it’s a buy-to-let or interest-only mortgage (you’ll need a repayment strategy in place for these deals), or if you’re looking for a mortgage to fund a shared ownership property
- Finally, filter your search by the type of mortgage you want, for example a two- or five-year fix or tracker. The filter is set to a complete mortgage term of 25 years but you can change this if required.
Here’s a live table of the mortgage deals available today.
What else do I need to know?
Mortgage deals offering the cheapest rates usually come with fees attached. You can opt to pay these upfront or add them to the loan. To factor in the cost of the fee, order your the results by ‘initial period cost’ (in the ‘Sorted by’ dropdown).
Alternatively, you can order results by initial rate, lowest fee or monthly repayment – even by the lender’s ‘follow on’ rate that the deal will revert to at the end of the term.
The very cheapest are reserved for bigger deposit amounts, usually of 60% of the property value or more. And, in all cases, you will need a sufficient income and clean credit history to be accepted for a mortgage.
If you want to see what your monthly mortgage payments might look like in different scenarios while overlaid with household bills, our Mortgage Calculator will crunch the numbers.
When can I start a remortgage?
Once issued, mortgage offers tend to be valid for six months, although a handful of lenders such as Skipton Building Society honour offers for up to 12 months. If you are looking to remortgage your current home, this means you can lock in a rate today – at no cost and with no strings attached.