Mortgage Rates Have Been Declining Since November Despite Base Rate Increases

With the rising inflation and economic turbulence, UK mortgage rates changed significantly during 2022 leaving many households with concerns about rising mortgage payments.

In this article, Claire Flynn, Senior Content Editor and Mortgage Expert at Uswitch.com, answers frequently asked questions about the 2023 mortgage market, current interest rates and provided tips on getting the best mortgage deal if interest rates rise significantly again.

What are the current interest rates for mortgages?

Source: Dashly
*Based on 75% LTV as of 18th January 2023.
*It’s important to note the above rates are averages of various products from UK lenders and aren’t necessarily indicative of the rate you would be offered.

The Bank of England raised the base rate several times in 2022 in response to increasing inflation.

The most recent adjustment in December raised it to 3.5%.

The Monetary Policy Committee of the Bank of England will next decide whether to raise the base rate on February 2, 2023.

They’re predicted to raise the base rate to keep fighting growing inflation.

How does the Bank of England base rate affect mortgage rates?

Base rate adjustments can impact the fixed-rate and other variable-rate packages that lenders provide, even though they only directly affect tracker mortgage rates.

However, since November 2022, mortgage rates, with the exception of tracker deals, have actually declined, despite base rate increases.

This is because lenders significantly increased the rates on their fixed and variable mortgages as a result of the mini-budget in September and the ensuing economic unrest.

Mortgage rates (apart from tracker arrangements) have been falling over the past few months as economic conditions have stabilised.

Even if the base rate increases over the next months, they are expected to keep falling.

How high will interest rates go?

The highest base rate in recorded history was 17% in 1979. However, it is not anticipated that the rate will rise to those levels any time soon.

In 2023, base rates are expected to increase to between 4 and 5%, however, this could fluctuate depending on the state of the economy.

Despite recent increases in the base rate, mortgage rates are currently falling.

This is due to the fact that mortgage rates considerably increased as a result of the economic uncertainty that followed the mini-budget in September 2022.

Lenders, though, started lowering rates after the economy stabilised.

Tips on getting the best mortgage deal if interest rates rise again

Below, Claire outlines some key tips are outline below regarding getting yourself the best mortgage deal if the rates do increase again.

• If you’re concerned about your interest rate rising, then you may want to consider fixing your mortgage rate. However, if your current agreement has not yet expired, be sure to be aware of any early repayment fees (ERCs).
• If you plan to remortgage within the next six months, you could lock in a new rate now and change when your current contract expires to avoid an ERC. You can normally switch again to receive a better option if rates decline before your deal ends.
• If you’re worried that they will drop once you’ve obtained a mortgage, you could choose a fixed-rate agreement with a shorter term so that you are locked into the rate for less time or consider a variable-rate mortgage, such as a discount deal. Keep in mind, however, that your rate may increase with a variable mortgage, which means you may face higher monthly repayments.
• Additionally, while low initial rates are attractive, you should be mindful of fees. Deals with the cheapest initial rates can be more expensive than other mortgages due to the fees involved.
• Looking at the Annual Percentage Rate of Change (APRC) is a good way to compare mortgages based on both the rate and fees. A mortgage broker will also look at all the costs involved to make sure you get the best deal for you and your circumstances.
• It’s important to note that even if the base rate increases in February, this doesn’t mean all mortgage rates will also rise. Rates for many fixed and variable mortgages have been dropping since November and are currently forecast to continue decreasing.
• In the current fast-changing market, speaking to an expert broker is one of the best ways to find the right mortgage for you.

Claire Flynn
Senior Content Editor and Mortgage Expert at Uswitch.com

Claire Flynn, Senior Content Editor and Mortgage Expert at Uswitch.com

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