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Understanding current UK mortgage rates

It’s been a turbulent few months for the UK housing market and recent political turmoil in the country has contributed to a sentiment of uncertainty about the highs and lows of current mortgage rates.

On the 3rd of November the Bank of England raised interest rates from 2.25% to 3.0%, with the 0.75 percentage point increase marking the eighth rise since December 2021 when the Bank rate stood at just 0.1%. This essentially puts the Bank rate at its highest level since November 2008, but it is worth noting that the last 10 years have seen historically low rates of borrowing. Bloomberg Economics forecasts another rise by 50 basis points in December and 25 basis points in February 2023, peaking at 4.25% in May. The central bank is only expected to start reversing direction in the second quarter of 2024 when inflation is forecast to drop below 2%.

Confusion and uncertainty regarding UK mortgage rates is entirely understandable after the last two months, so we’ve compiled a list of FAQs and answers to help you understand the current state of the market.

Are mortgage rates really going up or down?

Fixed mortgage interest rates have eased slightly over the past month after rising in response to the mini-budget in September earlier this year. It now looks like the base rate may peak around 4% before falling again. As for fixed rates which have fallen from their previous highs, a five-year fixed rate is currently set around 5-5.5% while the Bank of England’s next rate decision, in mid-December, will determine home-loan costs for the rest of the year and into 2023.

Will mortgage rates keep falling?

Increases aren’t unusual and expected hikes in the Bank of England’s standard lending rate in the months ahead must be considered. Mortgage costs tend to reflect the central bank’s rate and the Bank is expected to keep raising its benchmark rate to bring inflation under control — up to a 4.25% peak from 3% now, according to Bloomberg Economics. While it is likely that variable rates are set to rise, further increases in the base rate have already been priced into the fixed rates we're seeing, so a plateauing or slight easing of fixed rates is expected.

What are “normal mortgage rates after the last few years of uncertainty?

After years of interest rates closer to zero, homeowners may need to get used to a new ‘normal’ as the ultra-low interest rates of recent years start to vanish with averages closer to 5%. This also spills over into other parts of the market, and there has been a noticeable associated rise in rents to offset increased monthly mortgage repayments.

What are mortgage rates predicted to look like in 2023?

Borrowing costs are set to stay close to 5% until at least the first quarter of 2023, according to the Office for Budget Responsibility. Bank of England Governor Andrew Bailey believes that fixed-term mortgage rates don’t necessarily need to go up in direct response to base-rate hikes, but lenders are likely to reflect rate decisions and expectations when setting their mortgage costs. That said, lenders are also showing more flexibility, removing early repayment charges and tie-in periods so that people can switch from variable rates to fixed rates down the line, and vice-versa without the usual fees.

As always, you should ensure that you contact a professional as you explore and navigate your mortgage and property opportunities in the UK market. Contact Tailor My Property today and connect with our excellent network of financial and property experts today.


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