Mortgage rates are on the rise – what does it mean for you?
Whether you're buying a home, remortgaging or you’re a buy-to-let landlord, we look at what higher mortgage rates could mean for you.
The mortgage market is continuing its volatile streak as experts warn rates could rise over the coming days.
Rates had been trending downwards in recent weeks – the average two-year fixed-rate deal was 5.63% on 7 August and 5.59% on 1 September, according to financial data firm Moneyfacts.
But mortgage rates are on the rise again as the average rate on the same length deal had ticked up to 5.63% as of 7 September.
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The average five-year fix also rose from 5.63% on 1 September to 5.68% as of 7 September.
Rising mortgage rates have been a factor in falling house prices over recent weeks.
The hikes come following a rise in swap rates, which underpin how lenders price their fixed-rate mortgage deals.
Nick Mendes, mortgage technical manager at broker John Charcol, said: “There has been a clear change in mortgage pricing over the past few days, with more major lenders now starting to move rates higher.
“HSBC and NatWest have already increased rates since the start of September, while Santander, TSB and Skipton have also announced increases across parts of their ranges.
“What is notable now is not one lender making an isolated move, but a growing number beginning to reprice in the same direction.”
Why have mortgage rates been rising?
Swap rates reflect the wholesale cost of funding for banks and lenders and affect how they price credit such as loans and mortgages.
When swap rates rise, it becomes more expensive for lenders to fund mortgages and this tends to feed through to consumers.
Renewed and escalating tensions in the Middle East have stoked fears that inflation could rise, which has pushed up swap rates.
Plus, there is political uncertainty about new prime minister Andy Burnham’s tax and spending plans.
Should you fix your mortgage?
A fixed-rate mortgage offers you peace of mind that your interest rate won’t change throughout the course of the deal.
With mortgage rates rising, it could be worth locking in a new deal before they go higher.
Under the Financial Conduct Authority’s (FCA) mortgage charter, you can lock in a new fixed-rate deal six months before your current one is due to end and then shift to another, more competitive one, later on.
“This is a market where getting something secured is more important than trying to perfectly time the lowest possible rate,” said Mendes, from John Charcol.
“Having a deal in place gives protection if pricing moves further against you, and if rates improve before completion there is often still the opportunity to review the product again.”
What about variable mortgage rates?
Standard Variable Rate (SVR) mortgages are what borrowers tend to roll onto once their fixed-rate deal comes to an end and are generally much more expensive than fixed-rate deals.
The average SVR is 7.13% as of 1 September, according to Moneyfacts.
Meanwhile, tracker mortgages, which tend to match the Bank of England’s base rate, can be a good option if you expect interest rates to fall (though, at present, that seems unlikely).
The average two-year tracker rate is 4.51% as of 7 September, according to Moneyfacts.
Plenty of tracker mortgages come with no Early Repayment Charges (ERCs), so you can make an overpayment penalty-free, however, if the base rate rises your monthly repayments will increase.
If you’re currently on a SVR deal, in all likelihood you will save money moving onto a fixed-rate or tracker deal now. This is based on the current average rates for SVR, tracker and fixed-rate mortgages provided by Moneyfacts.
That said, ultimately, what rate you are offered is down to a host of factors, including the size of deposit you can lay down and your credit score.
What about buy-to-let mortgage rates?
Buy-to-let fixed-rate mortgage rates are also on the rise.
The average two-year rate has risen to 5.32% as of 7 September, up from 5.29% on 1 September.
This is also higher than at the outset of the war in Iran; the average two-year rate was 4.65% on 2 March.
Landlords are having to contend with other costs as well as elevated mortgage rates.
They now have to ensure they meet new Renters’ Rights Act rules, which began coming into force on 1 May.
Meanwhile, landlords will be expected to invest up to £10,000 to reach an EPC rating of C by October 2030.
In addition, a 5% stamp duty surcharge has applied on the purchase of second homes since October 2024, up from 3% previously.
Landlords will also receive less generous mortgage interest tax relief and higher income tax charges on property will apply from April 2027.
What support is available if you can’t pay your mortgage?
Mortgage rates are much higher than when many people would have last remortgaged. Some homeowners will be coming off rates as low as 1% or 2%.
Just over five million households are projected to see their mortgage repayments increase when they refinance by the end of 2028, according to the Bank of England.
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.
The charter is a series of support measures intended to help those in difficulty. Borrowers can 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 also 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 and you're on a low rate, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate.
Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.
Research from finance broker Clifton Private Finance found someone on a £250,000 mortgage paying it off over 25 years at 5% could save £40,000 in interest and shave four years off the term by overpaying by just £150 a month.
