The Bank of England raised interest rates in October from 2.25% to 3.0%. The 0.75 percentage point increase marks the eighth hike since December 2021, when the Bank Rate was just 0.1%. It puts the bank rate at its highest level since November 2008.
Volatility and uncertainty
The cost of mortgages had already soared due to the volatility of the pound sterling and market uncertainty, after the recent political turmoil – as well as the rise in the bank rate. Major lenders including NatWest, Barclays, Halifax and Virgin Money have all struck deals and brought them back to market at higher prices.
The appointment of Rishi Sunak as the new prime minister has helped calm markets, and over the past week the average cost of fixed-rate mortgages has fallen slightly from its peak.
According to data provider Moneyfacts.co.uk, the average two- and five-year fixed rate transaction cost for all deposit tiers is 6.47% and 6.32% respectively so far (November 3). ). This compares to 6.65% and 6.51% on October 20. However, the last time rates were around current levels was in 2008.
The average number of mortgage deals available stands at around 3,170. The number has risen since the start of this month, when the number fell to around 2,560 – but still compares to the 5,300 recorded by Moneyfacts in December 2021 before interest rates start to rise.
With mortgage rates changing rapidly, it’s important to stay calm and objective. It remains to be seen whether the stabilization of the political landscape after last month’s disastrous mini-budget under then-Prime Minister Liz Truss will serve to restore greater stability.
If so, this could ease the pressure on the Bank of England to raise interest rates.
The next decision to be taken by the Bank’s Monetary Policy Committee (MPC) will fall on November 3.
In the meantime, you can learn more about How to Weather the Mortgage Storm.
Interest rates and mortgages
So what does rising interest rates mean for the cost of mortgages so far?
The approximately two million owners benefiting from variable rate agreements, such as base rate trackers, will see an almost immediate increase in their monthly repayments following the recent increase in the bank rate to 2.25%. For example, a trailing rate going from 3.5% to 4% will cost nearly £60 more per month on a £200,000 loan.
Mortgages and first-time buyers will also face much higher mortgage costs when they come to seek a deal – as noted above – the cost of new fixed rates having already factored in the latest hike price.
You can calculate the monthly cost of a mortgage loan based on various interest rates with our mortgage calculator.
Property prices and stamp duty
In addition to more expensive mortgages, those looking to buy or move are struggling with asking prices that are 7.2% higher than 12 months ago, according to the Nationwide building society. Its latest report revealed that the average cost of goods put on the market in October was £268,282.
However, it also signaled further signs of a market slowdown, with the annual inflation rate dropping to 9.2% in September.
Continued increases in borrowing costs are expected to further weaken growth. The latest report from the Royal Institution of Chartered Surveyors (RICS) shows sales of agreed-upon homes fell in September for the fifth consecutive month. The -27% figure marks the biggest monthly decline since May 2020 when the market closed during Covid.
Stamp duty reductions announced in last month’s mini budget – which raised the zero rate bracket on buying a property from £125,000 to £250,000 – means that a third (33%) of all homes listed on Rightmove are also now tax exempt. This tax relief will remain in place.
Why are interest rates rising?
The Bank’s MPC uses interest hikes as a way to cool the economy and keep rising inflation in check. The consumer price index (CPI) measure of inflation already stands at 10.1% in the 12 months to September, against a government target of 2%.
If inflation continues to rise, some forecasters suggest that the bank rate could reach 6% by next year.
One of the main long-term drivers of rising inflation is the cost of energy. The government intervened by replacing the energy price cap – which was to drive prices up to over £3,500 a year from October 1 – with a cheaper energy price guarantee (EPG).
The EPG would limit the energy costs of typical-use household bills to £2,500 per year.
However, while the scheme was originally set to last two years, Chancellor Jeremy Hunt announced yesterday that it would end in April 2023.
The additional £400 automatic discount applied to each household’s electricity bills between October 2022 and March 2023 will remain in place.
What mortgage offers are available?
With bank and inflation rates on the rise, it is increasingly difficult to keep track of mortgage costs, especially when rates change and deals can be made on a daily basis.
An easy way is to use our mortgage tables, provided by online mortgage broker, Trussle.
To find out which offers are available at the current rates for the type of mortgage you are looking for, you will need to enter your personal criteria in the table below. Here’s what to do:
- Indicate whether the mortgage must finance the purchase of a house or if it’s a mortgage for an existing property
- Enter the property value and the mortgage amount you need. This will automatically generate a percentage which is known as your ‘loan to value’. The lower the value of your loan, the lower the mortgage rates available
- Check the appropriate box if this is a purchase for lease or interest-only mortgage (you will need a repayment strategy in place for these transactions), or if you are looking for a mortgage to fund a shared ownership property
- Finally, filter your search by type of mortgage you want, for example a patch or a two- or five-year tracker. The filter is set to a full mortgage term of 25 years, but you can change it if needed.
Here is a live chart of mortgage deals available today.
What else should I know?
The mortgage offers offering the cheapest rates usually come with fees. You can choose to pay them upfront or add them to the loan. To account for the cost of fees, sort your results by “initial period cost” (in the “Sorted by” drop-down menu).
Alternatively, you can sort the results by initial rate, lowest fee, or monthly repayment – even by lender’s trailing rate the deal will revert to at the end of the term.
The cheapest are reserved for larger deposit amounts, usually 60% of the property value or more. And, in any case, you will need sufficient income and clean credit history be accepted for a mortgage.
If you want to see what your monthly mortgage payments might look like under different scenarios while being superimposed on household bills, our mortgage calculator will crunch the numbers.
When can I start a mortgage?
Once issued, mortgage loan offers tend to be valid for six months. If you’re looking to remortgage your current home, that means you can lock in a rate you see today – free of charge and with no strings attached.
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