While mortgage rates have tumbled in recent months, homeowners and first-time buyers are being warned that rate cuts may come to an "abrupt halt", with several lenders starting to hike their rates.
Coventry Building Society put rates up on Friday, and Santander will increase some of its deals for homeowners and landlords tomorrow. TSB is also hiking some of its rates by as much as 0.25%.
Meanwhile, Barclays announced last week that it would raise rates on some deals, and cut rates on others.
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So, what is going on with mortgage rates? There have been no interest rate changes by the Bank of England this autumn. At its most recent Monetary Policy Committee (MPC) meeting on 19 September, the UK's central bank opted to keep the base rate frozen at 5%. This followed a cut from 5.25% to 5% - the first since 2020 - at its previous meeting on 1 August.
And Bank of England governor Andrew Bailey even said recently that it could be a “bit more aggressive” at cutting borrowing costs, suggesting that the Bank could cut interest rates more quickly if price rises remain under control.
Why then are some mortgage prices starting to creep up? David Hollingworth, associate director at L&C Mortgages, explains: "The mortgage market has seen rates falling in recent months but that may be coming to an abrupt halt. Fixed-rate mortgage pricing depends on what the market anticipates may happen to interest rates, and uncertainty over the forthcoming Budget and global unrest is pushing costs back up for lenders."
Mortgage rates fell significantly in the wake of the August interest rate cut and there are now several sub-4% mortgage deals after a flurry of rate reductions - although you may need to act fast to get these deals given some rates are being increased, and also due to lenders reducing their "lock in" windows.
Nationwide became the first major lender to offer a sub-4% deal since February when it unveiled a 3.99% five-year mortgage in July.
Coventry Building Society, HSBC, Lloyds, NatWest, TSB and Virgin Money have also released sub-4% five-year rates. Meanwhile, two-year fixed-rate mortgages are starting to drop below 4%, with Santander recently releasing a 3.99% deal at 60% loan-to-value.
Ranald Mitchell, director at Charwin Mortgages, says: "Lower rates mean more affordable mortgages, increasing accessibility for first-time buyers and those looking to remortgage. The property market stands to benefit as well, with these competitive rates likely to fuel buyer activity."
However, the rate rises of the last few days are "a reminder that things can change", according to Hollingworth. He notes: "Swap rates are a good indicator of the direction of fixed-rate pricing and they have bounced back up. If that persists, fixed-rate improvements will be brought to an abrupt halt and edge back up.
"This isn’t a cause for panic but those that have been tempted to wait for lower rates may want to consider locking into a deal in case we see further increases."
There are two more Bank of England meetings to come this year where interest rates could fall again. Markets are expecting at least one more cut this year, indicating that mortgage rates could plummet again. Having said that, the halcyon days of 1% or 2% mortgage rates are unlikely to return in the near future. That could come as a shock for borrowers looking to remortgage from rates they secured five years ago.
About 1.5 million households who need to remortgage this year will see their payments rise by £1,800 a year on average, according to the Resolution Foundation.
So, will mortgage rates fall futher this year, or has the flurry of rate cuts really come to an end? Here's everything you need to know.
Which mortgage lenders have raised rates?
Coventry Building Society, Barclays, TSB and Santander have all increased some of their rates in recent days.
For example, Santander is hiking select residential fixed rates by up to 0.22% across purchase, remortgage and green products, which will be effective tomorrow (15 October). Some of its new build rates will rise by up to 0.10%, while some buy to let and green buy to let fixed rates will go up by 0.03%.
Other lenders such as the Co-operative Bank have withdrawn some of their cheapest deals.
As well as an increase in swap rates, lenders may also withdraw competitive products or raise rates due to service levels.
Nicholas Mendes, mortgage technical manager at the broker John Charcol, comments: "If a mortgage product is too competitive in the market, meaning the lender's offering is more attractive than others, this can lead to a surge in applications. Although high demand seems positive, it can strain the lender’s ability to process applications efficiently."
Which lenders are cutting mortgage rates?
According to Moneyfacts, the average two-year fixed-rate mortgage is priced at 5.37% (correct as of 14 October). The average five-year deal comes in at 5.06%.
This represents a decent drop compared with mid-July: the average two-year fix was 5.9% while a five-year deal was 5.49%. It also means deals are now the cheapest they have been in 2024, surpassing the lows seen in February when the average two-year fix was 5.56% and the average five-year deal was 5.18%.
In terms of price cutting at the moment, major lenders started reducing rates at the end of June, led by Barclays and HSBC and followed by Halifax, Nationwide, TSB and NatWest. And that has continued as HSBC, Barclays, TSB, Santander, Virgin Money, MPowered, Halifax, Leeds Building Society, The Mortgage Works and Skipton Building Society have all made mortgage rate cuts in recent months.
Rate cuts haven't only been focused on low loan-to-values (LTVs), with many lenders such as NatWest reducing their 90% and 95% LTV products below 5% in a boost for first-time buyers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said earlier this month: "A more aggressive approach to rate reductions has been welcomed by the markets, with swaps falling on the back of the governor’s comments, which should feed through to even lower mortgage pricing.
"This ongoing rate war among lenders is great news for borrowers as there are some really compelling deals being launched, which will go some way to helping affordability."
What is the forecast for mortgage rates?
Most experts expect mortgage rates to tumble further, despite the recent rate increases by certain lenders.
But how far they fall depends on whether we have another base rate cut, and also on swap rates.
Swap rates are based on what the markets think interest rates will be in the future. They influence the price of fixed-rate mortgage deals, so if swap rates go down, mortgage rates tend to go down. If they go up, so do mortgage rates. Soaring swap rates were partly to blame for rising mortgage rates earlier this year, even though there had been no change to the base rate.
Whether we see any more base rate cuts this year will depend on economic data such as inflation and wage growth. July's inflation figure came in at 2.2%, marking the first rise this year. Inflation then held steady at 2.2% in August. Higher inflation could mean the Bank delays a rate cut, putting the brakes on further mortgage rate falls. Markets have been pricing in at least one further base rate cut before the end of 2024, with November looking like the most likely month.
While mortgage rates are currently falling, product availability is rising. The average mortgage product shelf-life is 21 days, compared with 17 a few months ago, according to Moneyfacts. However, this still only leaves borrowers three weeks to grab a mortgage product, so if you spot a good deal, the advice is to move quickly before it is pulled.
Bear in mind that the mortgage rate is just one aspect of a deal. Borrowers need to watch out for extra mortgage costs as some deals have high fees attached that could offset any savings compared with other deals with higher rates but lower charges. For example, many of Barclays' mortgage deals have fees in excess of £1,000. Several of its products come with a price tag of £2,495.
What's mortgage availability like?
Mortgage product availability has dipped whenever rates have surged. In the wake of Liz Truss's mini-Budget in 2022, not only did two and five-year fixed deals go up by more than a percentage point, 1,700 lender products - 40% of the market at the time - disappeared from sale in the space of a week.
In the summer of 2023, when rates rose even higher, almost 800 deals - 10% of the market - were withdrawn by lenders. There's been a larger range of mortgage deals available this year. There are currently 6,645 options, according to Moneyfacts, up from 6,590 in September.
First-time buyers also have more choice, with the product range hitting a two-year high. There are 361 mortgage deals on the market that have a 95% loan-to-value, up from 270 in January, according to Moneyfacts.
Should you fix your mortgage?
If the last two years of rises and falls have told us anything, it's that predicting falls in mortgage rates is not an exact science. So, if you're one of the 1.5 million households whose fix is expiring this year, should you opt for a fixed deal?
According to Jo Jingree, MD of mortgage advice firm Mortgage Confidence, the answer is yes. She told MoneyWeek: "If your fixed rate is ending, I would always recommend securing a new rate now even if rates are falling, as it’s impossible to know how long that trend will continue for and rates could start to rise again at any time.
"We have seen a very fluctuating market over the last few months so secure and monitor is my advice."
She was echoed by Mendes at broker John Charcol, who urged people to not take a "wait and hope approach". He said remortgagers can lock in a rate up to six months before their deal is set to expire, and jump to another deal with that lender if rates go down.
However, do double-check the time window for locking in a new deal, as some lenders have reduced theirs to just three or four months recently.
What about variable mortgage rates?
About 2.2 million homeowners are on variable-rate mortgages, which are linked to the Bank of England’s base rate. The average standard variable rate (SVR) is an eye-watering 7.96%. The average two-year tracker costs 5.67%.
Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates continue to fall this year, the money they save from getting rid of their expensive SVR earlier could make it worth it.
Analysis by Compare the Market reveals homeowners on a SVR mortgage could save up to £330 a month by switching to a fixed-rate deal, the equivalent of £3,960 a year. This is based on moving from an average SVR to an average five-year mortgage rate.
What about buy-to-let rates?
Last summer, buy-to-let mortgage rates were pushing 7%. They have since come down from these sky-high levels. As of 14 October, average buy-to-let rates were 5.26% for a two-year fix, and 5.27% for a five-year deal, Moneyfacts said.
The Mortgage Works - the buy-to-let arm of Nationwide - reduced some of its mortgage rates for new customers last month, with rates falling by up to 0.10 percentage points. Barclays and TSB also recently lowered some of their buy-to-let rates. However, mortgage 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. According to the trade body UK Finance, the buy-to-let market contracted for the first time in terms of outstanding mortgages, from 2.039 million mortgages in Q1 2023 to 1.98 million in Q1 2024.
Meanwhile, the volume of lending for buy-to-let house purchases more than halved over the course of 2023, with the number of new mortgage loans being granted falling from 25,280 in the fourth quarter of 2022 to 12,422 in the first quarter of this year. There is now a record number of previously-rented homes being listed for sale, as financial strain pushes landlords to sell up.
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.
Around 1.4 million mortgages have benefitted from the mortgage charter since it was introduced in June 2023, according to data from the City watchdog.
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.
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