What's happening to UK mortgage rates?

Lenders are raising mortgage rates after the UK was hit by worse-than-expected economic data.

Barclays, HSBC, NatWest, Accord and Leeds Building Society are increasing some mortgage deals from today.

It comes as inflation and wage growth figures came in higher than hoped. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Inflation slowed to 3.2% in the 12 months to the end of March, down from 3.4% in February. But, some economists had expected inflation to have dropped further. Meanwhile, wage growth of 6% means earnings are continuing to rise at an inflation-busting rate. 

The economic data has led to concerns the Bank of England won't cut interest rates as far or as fast as had previously been hoped. 

The average two-year fixed rate is 5.83%, according to Moneyfacts, while a typical five-year deal is priced at 5.4%. Both averages have crept higher in recent days.

Mortgage lenders had started to cut rates at the end of 2023 amid hopes that the Bank of England would cut its base rate early in the New Year amid slowing inflation. But these reductions were short-lived as the Bank opted to keep its rate frozen in the face of data that suggested inflation was proving to be too sticky.

The financial markets are now expecting an interest rate cut this summer, possibly as late as August, with some even pricing in November as the first month for a cut. The uncertainty has fed through to the housing market, where house prices have remained sluggish due to affordability concerns.

This uncertainty has also been reflected in the fact the best mortgage deals aren't sticking around for long as borrowers rush to snap up lower rates. The average shelf-life of a mortgage product has plummeted to a six-month low of 15 days as of March 2024, according to Moneyfacts.

While mortgage rates have dropped noticeably from some of the highs of last year, they are still more costly than has been the norm for the last decade. It means borrowers who are still on cheap fixed-rate mortgages could get a big shock when they remortgage. 

Data from the Financial Conduct Authority shows that nearly 1.4 million mortgage deals are set to end in 2024, forcing homeowners to pay £200 more on average in monthly payments.

Which lenders are raising mortgage rates?

Barclays is lifting rates for the second time in the space of seven days, increasing a range of mortgage products by 0.1% today. It follows a 0.2% hike last Thursday.

NatWest is raising some of its two and five-year "switcher" deals for existing customers by 0.1%.

HSBC and Accord are also increasing some of their mortgage rates today (23 April 2024).

Leeds Building Society is increasing the fixed mortgage rate on selected products by up to 0.2% for both new and existing customers.

The Co-op said it put up the rates on some of its fixed deals by up to 0.41% yesterday, while also cutting the rate by 0.07% on others.

Danny Belton, head of lending at Mortgage Advice Bureau, comments: "We've become familiar with mortgage rates dropping, but rates are now creeping up again, with several lenders repricing this week. Swap rates have ticked up slightly on Bank of England interest rate expectations, and this is prompting a shift in the market."

When will mortgage rates go down? 

At present, there appears to be little hope of any mortgage rate cuts until there is greater certainty about Bank of England base rate cuts. In the meantime, we could see small rate hikes from some lenders, experts have warned.

"The market is in dire need of some positive movement from the Bank of England," says Nicholas Mendes, mortgage technical manager at John Charcol. "Until we see a rate reduction we're going to see a period of rate increases as markets start to be unsettled.

"Mortgage holders coming to the end of their fixed deals this year and in early 2025 will need to be prepared to see rates that are higher than previous predictions. Initial forecasts of a 3.5% fixed rate by August to late September this year are very unlikely, with any sign of such a deal now pushed back to later in the year."

He added: "While the temptation will be to wait and hold out for the best deal, it is strongly recommended that you regularly speak with a broker so you can understand the options available to you until your deal is due to expire."

Even if rates do start to come down soon, the lows of the late 2010s are unlikely to be replicated. Earlier this year, Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown, warned that an "era of super-low rates” was not on the horizon, even if mortgage rates fell.

But she said that any fall in rates would “be enough of a shift to make a material difference to remortgagers", as well as those buyers "who had been priced out of the market”.

While the economic outlook is still difficult for many people, there is a bit of hope for some property buyers. For example, some lenders are offering more innovative products, which could aid first-time buyers. One of them is Yorkshire Building Society, which unveiled a 99% loan-to-value mortgage last month.

The mortgage rate is just one aspect of a deal though. Borrowers need to watch out for extra mortgage costs as many deals have high fees attached that could offset any savings compared with other deals with higher rates but lower charges.

Mortgage product fees have increased to £1,141 on average as of early March, up £46 compared with this time last year.

What about variable mortgage rates?

About 2.2 million homeowners are on variable-rate mortgages, which are tied to the BoE’s base rate. The average standard variable rate (SVR) is an eye-watering 8.18%.

Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall later this year, the money they save from getting rid of their expensive SVR earlier could make it worth it.

Coles says that there is hope for remortgagers waiting for cheaper fixes to emerge: "Over the coming months, we will see mortgage rates ease. Fixed deals will get cheaper, and they should finally see the huge pressure on their budgets start to ease."

What about buy-to-let rates?

Last summer, buy-to-let mortgage rates were pushing 7%. Thankfully they have come down from these sky-high levels.

As of 23 April, average buy-to-let rates were 5.54% for a two-year fix, and 5.51% for a five-year deal, Moneyfacts said. However, rates still remain high relative to pre-cost of living crisis levels.

These high buy-to-let mortgage rates - coupled with a 3% stamp duty surcharge and less generous mortgage interest tax relief - are making things tough for landlords. But sentiment in the sector remains mostly positive, according to recent research by Leaders Romans Group.

Mortgage support available

Mortgage rates are much higher than when many people would have last remortgaged. Millions of homeowners will be coming off rates as low as 1% or 2%.

If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.

The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.

Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments.

Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties. 

Should I overpay my mortgage?

If you’ve got some spare cash, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a much higher rate.

Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.