Current Mortgage Rates

Mortgage rates have gone through the roof in the UK. With the current Bank of England bank rate hitting 5.25% with no signs of slowing down, what does this mean for homeowners and first-time buyers?

In this article, we will delve into the reasons behind the mortgage rate surge and possible future predictions to look out for. 

We will also provide you with the best mortgage rate deals currently available.

Provider	Score	Details
1. Yorkshire Building Society	★★★★★	Learn more
2. Vernon Building Society	★★★★★	Learn more
3. Furness Building Society	★★★★★	Learn more
4. Lloyds Bank	★★★★★	Learn more
5. HSBC	★★★★★	Learn more
6. Bath Building Society	★★★★★	Learn more

What Are Mortgage Rates?

Your mortgage rate is the interest rate charged on your mortgage by the lender. You will need to pay a certain percentage of interest on the amount of money you have borrowed, which is how the lender generates their income.

Mortgage rates are agreed upon when you take out the mortgage. A lender will agree to borrow you a set amount of money to buy a property whilst charging a specified interest rate. 

There are three types of mortgage rates to consider when applying for a mortgage as we discover their benefits and limitations:

1. Fixed Rate

A fixed rate mortgage offers interest at a fixed rate for a fixed period. This means that you could be charged the same interest rate for 2 years, for example. Other fixed period terms include 3-years, 5-years, or occasionally, 10-years.

✔️ Benefits: A significant benefit of fixed interest rate mortgages is that you know how much your mortgage payments will be each month. You know what mortgage repayments to expect and can budget and plan your finances accordingly.

❌️ Limitations: When you agree to a fixed rate mortgage, you cannot easily exit that deal, even if mortgage rates decline and you could find a cheaper rate elsewhere. To exit a fixed rate mortgage deal, you will need to pay an early repayment charge. Early repayment charges vary, although could be between 1%-5% of the remaining mortgage balance.

2. Variable Rate

When agreeing to a variable rate mortgage, you will pay the lender’s standard variable rate in interest with your mortgage repayments. The standard variable rate can change at any moment, particularly when the Bank of England base rate rises.

✔️ Benefits: You are not locked into a deal with a variable rate mortgage and you can change to a better deal whenever you want. There are no early repayment charges if you decide to change to a different rate or an alternative lender.

❌️ Limitations: Variable mortgage rates typically charge a higher interest rate than fixed rate mortgages. This is because you are free to leave the variable rate when you want to, whereas fixed rate deals are lower to encourage borrowers to fix a deal.

3. Tracker Rate

A tracker rate mortgage tracks the Bank of England base rate, increasing or decreasing accordingly. The lender will then add their own percentage point to the tracker rate to charge you an overall mortgage rate.

✔️ Benefits: Tracker mortgages can offer you low mortgage interest rates when the Bank of England base rate is low, for example when the base rate was only 0.25 during 2017. You are also free to look at other deals and are free to switch to another lender or rate, with zero early repayment charges applicable.

❌️ Limitations: When the Bank of England base rate is high, so is your tracker mortgage interest rate. As of September 2023, the Bank of England base rate is 5.25% and is predicted to rise to 5.75% in early 2024. This will mean higher tracker rate mortgage payments for you as this is out of the lender’s control.

Can I Get a Better Deal With a Fixed or Variable Mortgage Rate?

The best mortgage rates will vary, depending on the lender and the economic climate when you make your mortgage application. 

Currently, you may find that better deals are being offered with fixed rate mortgages as lenders want borrowers to give them a degree of certainty. The best deals may come with much longer fixed period terms, such as 10-year deals. 

However, with a varied and changing economic landscape, the best deal today may not be the best deal in the future, so a 10-year deal could be unwise. 

The Bank of England base rate may fall considerably during this time. You will then be left with a high mortgage interest rate and will need to pay an early repayment charge to exit your existing deal.

Can I Move Home Whilst Under a Fixed Rate Deal?

You can sell your property and move home whilst under a fixed rate deal, although you will need to pay an early repayment charge. This fee will usually fall between 1%-5% of the outstanding balance and can add up to a substantial sum. 

If you are under a variable rate mortgage, however, you do not need to pay a fee if you decide to sell your home as you are not fixed into the deal.

What Are Repayment and Interest-Only Mortgages?

A repayment mortgage involves your outstanding mortgage balance decreasing every time you make a payment. An interest-only mortgage requires that only the lender’s interest is paid each month, whilst your mortgage balance remains the same.

Repayment Mortgage

Repayment mortgages decrease your outstanding balance each month. So, if your lender states that your mortgage payment is £914.23 per month on a repayment mortgage, part of this amount will come from the money you borrowed. 

The remainder of the mortgage payment is interest and will be taken straight away by the lender. The higher your mortgage rate, the more money will be paid to the lender in interest.

✔️ Benefits: This type of mortgage is best as you will slowly reduce how much you owe the lender each month. A mortgage is a debt, and like other debts, you need to pay the lender the money you have borrowed. 

A repayment mortgage will ensure that you reduce some of the balance over time. However, it is recommended that you make additional mortgage payments when you can as paying the minimum amount each month does not always clear the outstanding balance.

❌️ Limitations: Paying a repayment mortgage amount every month can be expensive, especially if you are paying a high interest rate.

Interest-Only Mortgage

An interest-only mortgage deal may offer short-term benefits in addition to a long-term problem. Whilst an interest-only mortgage lowers your monthly repayments as you are only paying the lender’s interest, you are not reducing your mortgage balance at all. 

This means that your mortgage debt never declines and you will still owe the same amount of money to the lender at the end of the mortgage term. 

✔️ Benefits: You can reduce your monthly outgoings if you are struggling to make the repayments by taking out an interest-only mortgage. This could help your finances in the short term.

❌️ Limitations: Your mortgage balance remains the same year after year. The equity in your property will rely on housing price rises, with the possibility that a housing price decrease could result in negative equity. 

Negative equity means that you owe more money to the lender than the house is worth. So, if your home is worth £300,000 but you owe the lender £350,000, you have fallen into negative equity. You cannot sell the house unless you can pay the difference to the lender.

What Is the Bank of England Base Rate?

The Bank of England base rate is the interest rate set by the Monetary Policy Committee (MPC). The Monetary Policy Committee aims to meet the Government’s 2% inflation target, although the current economic climate is making this target difficult to achieve.

When the Bank of England Base Rate changes, the interest rates charged by lenders and banks change accordingly. This impacts interest on debts and savings.

Why Is The Bank of England Base Rate Rising?

The main reason for the rise in the base rate is the increase in inflation. UK inflation is currently 6.8% as of Summer 2023, although inflation peaked at 9.6% in October 2022. 

Inflation in the UK remained steady at 1.79% in 2019, before the COVID pandemic. However, vast amounts of government spending and money printing during the COVID pandemic amounted to between £310 billion to £410 billion, leading to the astronomical inflation rates we are currently experiencing.

When inflation is high and particularly when inflation is rising fast, the Monetary Policy Committee may decide to combat this by raising the bank rate. 

A higher bank rate may prevent individuals from borrowing money and encourage them to save money instead. This may ultimately lower inflation.

How Much Can I Borrow With a Mortgage?

The amount of money you can borrow with a mortgage will depend on your credit score, affordability, your deposit value, the price of the property, and your Loan to Value (LTV) percentage.

Loan to Value Percentage

Your Loan to Value (LTV) percentage represents the percentage of the property value you want to borrow. 

So, if the property you want to buy is worth £300,000 and you have a £30,000 deposit, your mortgage value will be £270,000. 

Your potential lender will find your LTV by dividing the amount you want to borrow by the property value, in this case £270,000 divided by £300,000. This equals 0.9. The lender will then multiply this result by 100 to find 90%.

But, what does an LTV percentage of 90% mean for you and your mortgage? An LTV percentage of 90% is high and may prevent some lenders from accepting your mortgage application. It means that you want to borrow 90% of the property’s value, leaving very little equity if the property were to be repossessed or if the value decreased.

The lower the LTV percentage the better. Some lenders will consider an LTV of 80% although other lenders prefer a 60% or 70% LTV percentage. 

Lower LTV percentage results are better for the lender as there is greater equity in the property if you were to default your mortgage repayments.

Will Mortgage Rates Decrease in 2024?

Some experts are predicting that the Bank of England base rate will peak at 6.5% in the middle of 2024, followed by a gradual decline. As a result, the base rate should eventually stabilise at around 4% the following year.

What Does This Mean for Your Mortgage?

If you are trying to get a mortgage today, the best option is to fix a 2-year deal at around 6%. Unfortunately, deals with cheaper rates will expect you to fix for 3-years, 5-years, or 10-years. 

However, if you fix a 2-year deal in Autumn 2023, the base rate should have fallen and stabilised at around 4% by Autumn 2025, when your mortgage deal will need to be renewed. At this stage, you should be able to find a cheaper mortgage rate than the rates currently offered.

If you can delay applying for a mortgage, you could wait until Autumn 2025 when the economy should be showing some signs of recovery.

What Are the Current UK Mortgage Rates?

Current UK mortgage rates fall between 5%-7%, although this depends on whether you are a first time buyer, are moving home, or are buying a buy-to-let property. Rates will also differ from lender to lender and depending on your credit score and LTV.

For example, as a first time buyer with a LTV percentage of 80%, you can secure a 6.34% interest rate, fixed for 2-years with the Fee Saver mortgage.

Or, if you are moving home and have had a previous mortgage, you can secure a 3-year fixed deal at a rate of 5.84%, if you have a LTV percentage of 70%.

Buy-to-let mortgages usually come with a higher interest rate as it is considered a business purchase. Although, you could secure a 5-year fixed deal with HSBC with a rate of 5.74%, if you have a LTV percentage of 60%. 

At a Glance, Current Mortgage Rate Pros and Cons

Is now the best time for you to secure a mortgage rate and buy your own home?

Read this section for a clear overview of the pros and cons of current mortgage rates available in the UK.

Pros

✔️ Rates are still historically low — Whilst current mortgage rates are higher than in recent years, the future economic climate in the UK and across the world is uncertain. What if mortgage rates reach double figures? 

This suggestion is not as prosperous as it sounds. After all, homeowners in 1979 faced interest rates of 17%, with mortgage rates rising further than this figure. 

With such an uncertain economic future ahead of us, it could be an advantage to lock into a fixed rate mortgage deal today before rates rise further.

✔️ Lenders lowering rates — Lenders need certainty for their own financial reasons and are, therefore, in need of borrowers to lock into long-term mortgage deals. 

As a result, borrowers can capitalise on the desperation of lenders and find some low rates. You will need to fix your mortgage for a longer rate term, however, perhaps up to 10-years.

✔️ Poorly performing rental market — It is not just homeowners who are facing difficulties at the moment. Renters are also finding that landlords are dramatically increasing their rent or selling the property they currently live in. 

In many cases, this will be a knock-on effect of the higher mortgage interest rates that landlords are facing. However, if you have your own mortgage, you cannot lose your home or face price increases as long as you continue to pay your monthly payments. 

In such situations, higher mortgage rates may not seem too bad in contrast to renting.

✔️ Choice — As a borrower you do have choices, particularly if you have a good credit history and a large deposit. If you are in a good position, lenders may compete to offer you great deals.

You will also have the choice to choose a fixed, variable, or tracker mortgage, suiting your circumstances and the current climate. You could also choose an interest-only mortgage on a temporary basis to keep your monthly costs lower for a while.

If you can keep abreast of the interest rate situation in the UK, a variable rate mortgage could offer you flexibility to see whether rates will start to fall. However, if rates continue to climb, you will need to act quickly to fix a mortgage deal to suit you.

Cons

❌️ Increasing debt levels — Taking on a mortgage means increasing your level of debt. You could already have credit cards, personal loans, car loans, and homeowner loans. Overall, debt is not healthy and can soon spiral into a problem.

❌️ Repossessions — If you do not pay your mortgage repayment on time every month, your property could be repossessed. As current interest rates are high, the possibility of a property being repossessed is much higher than in previous years.

❌️ Negative equity — The property market is just as unpredictable as the UK economy and so property prices may fall as quickly as they have recently increased. 

A dramatic decline in property prices may mean that your property falls into negative equity, meaning that you owe more money to the lender than what the property is worth. In this situation, you cannot sell the property unless you can pay the negative difference.

❌️ Higher rates — As a potential borrower, it does seem unfair that a mortgage in 2023 will cost so much more interest than someone who got their mortgage in 2019. The Bank of England base rate alone has increased from 1.79% to 5.25% during this time.

Best Current Mortgage Rates

Now you have digested all pieces of information about current mortgage rates, which mortgage rate will suit you and your requirements? Let’s compare mortgage rates!

Here are the top 6 best current mortgage rates for you:

1. Yorkshire Building Society 5-Year Fixed — Best for a 5-Year Fixed Deal

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a fixed monthly payment of £1,916 every month for 5 years, totalling £114,960. The interest rate charged across the 5 years is 5.40%, moving to a variable rate of 7.99% after 5 years if you do not secure another deal. Monthly payments at a rate of 7.99% will cost you £2,343.86.

The 5-year fixed deal from Yorkshire Building Society is a good choice for securing a low interest rate of 5.40% as a first time buyer, much lower than the average 6.1% interest rate offered by many bank or building society lenders.

The loan term for this mortgage product is 5-years and you will fix the 5.40% interest rate for this duration. After the 5-year fixed period, a variable rate of 7.99% will be charged unless you switch to another deal.

Additional costs for this product include a product fee of £995 although a zero valuation fee applies.

2. Vernon Building Society Lifetime Discounted — Best for a Lifetime Deal

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a fixed monthly payment of £1,916 every month for the lifetime of the mortgage. The interest rate charged across the lifetime of the mortgage is 5.40% and you will pay £575,023 after 25 years.

The Lifetime Discounted mortgage product from Vernon Building Society offers a rate of 5.40% for first time buyers across the whole lifetime of the mortgage, such as 25 years. You will pay £1,916 per month for 300 months, paying a total of £575,023 at the end of the mortgage in the representative example.

To apply for this mortgage, there is no product fee to pay although there is a £325 valuation fee to consider. Additional costs include admin fees of £30 and £100, respectively, and a redemption fee of £25.

3. Furness Building Society 2-Year Discounted — Best for a 2-Year Fixed Deal

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a fixed monthly payment of £1,961 every month for 2 years. The interest rate charged is 5.62% for 2 years and you will pay £47,987 during these 2 years. A variable rate of 6.75% is payable after the 2 year fixed deal, unless another deal is arranged. Monthly payments will rise to £2,163.19 at this point.

This 2-year deal from Furness Building Society offers a low interest rate for first time buyers looking for a 2-year fixed rate. You will pay a low 5.64% during the 2-year period.

A variable rate will be charged after 2 years with a rate of 6.75%. Monthly payments will rise unless you fix a new deal with the lender, or a different lender.

Also Read: Building Societies vs Banks: What’s the Difference?

4. Lloyds Bank 10-Year Fixed — Best for the Lowest Rate

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a fixed monthly payment of £982 every month for 10 years. The interest rate charged is 4.88% for 10 years and you will pay £118,833 during these 10 years. A variable rate of 8.74% is payable after the 10-year fixed deal, unless another deal is arranged. Monthly payments will rise to £1,247.48 at this point.

The 10-year fixed deal from Lloyds Bank is a long-term fixed deal for existing customers. A low interest rate of 4.88% is attainable, although after the 10-year deal has ended, you will be switched to a variable rate of 8.74% unless you secure another deal.

A product fee of £999 is payable with this mortgage deal, although a £0 valuation fee applies. You could receive a £250 cashback incentive, however.

5. HSBC 2-Year Tracker — Best for Tracker Interest Rates

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a variable monthly payment of £2,057. The interest rate charged is 6.14% for 2 years and you will pay £50,374 during these 2 years. A subsequent variable rate of 6.99% is payable after the 2 years, unless another deal is arranged. Monthly payments will rise to £2,214.66 at this point.

The 2-year tracker deal from HSBC offers an interest rate of 6.14%, with a further interest rate of 6.99% payable after 2-years.

A product fee of £999 is required to secure this mortgage, although there is no valuation fee to pay.

6. Bath Building Society 5-Year Discounted — Best for Buy-to-Let

Representative example — when borrowing £315,000 over 25 years with a £35,000 deposit, you will pay a variable monthly payment of £2,105. The interest rate charged is 6.39% for 5 years and you will pay £126, 817 during these 5 years. A subsequent variable rate of 8.39% is payable after the 5 years, unless another deal is arranged. Monthly payments will rise to £2,452.13 at this point.

The 5-year deal from Bath Building Society is tailored for buy-to-let borrowers. You will achieve an interest rate of 6.39% across the 5-year term, rising to 8.39% after this fixed period unless you agree to another deal.

There is a product fee of £499 to pay to secure this deal, although the valuation is free. A £100 redemption fee is applicable, however.

Leading Mortgage Rates: The Verdict

Despite the sporadic interest rate changes in the UK right now, there are still some good mortgage rates available. First time buyers can receive a superb rate of 5.40% from Yorkshire Building Society for a 5-year deal, injecting some stability into their finances.

Current Lloyds Bank customers can apply for a 10-year fixed rate mortgage, with an interest rate of 4.88%, saving lots of money. An interest rate of 4.88% is rather rare in the current economic climate so grab hold of it straight away.

If a buy-to-let mortgage is what you are looking for, Bath Building Society is offering a 5-year fixed deal at an interest rate of 6.39%, a great rate for investors.

Related Guides:

• What are Solicitors Fees When Buying a House?
• Best Buy to Let Mortgages