Mortgage rates have been particularly volatile in the UK over recent years. The Bank of England increased the base rate to try to get a handle on inflation, which caused mortgage rates to soar. Understandably, this has created anxiety for many homeowners, who worry that any further increase could push them over the edge. As of the time of writing, most experts expect mortgage rates to come down at some point as inflation cools, but there are no guarantees as to when this will happen. In fact, some lenders have increased their rates in recent weeks as a response to increasing swap rates and a stubbornly high base rate. This suggests that the volatility isn’t over yet, so we understand why so many people are wondering how much their mortgages will go up if interest rates rise. In this guide, we’ll explain what factors influence mortgage rates, how much your mortgage could go up if interest rates rise, and what you can do to reduce your monthly mortgage repayments.
What Affects Mortgage Rates?
There are several factors that influence mortgage rates, and understanding these factors can help you anticipate possible future rate changes. Let’s have a quick look at the four key players when it comes to mortgage rates in the UK.
- Bank of England Base Rate. This is the rate that banks and lenders are charged when they borrow money from the Bank of England (BoE). The BoE adjusts the base rate to reduce inflation or stimulate the economy. A higher base rate typically translates to higher mortgage rates.
- Inflation. Rising inflation often prompts the Bank of England to raise the base rate to cool things down. This, in turn, can push mortgage rates upwards. We saw this happen in the UK in 2022 and 2023 when inflation reached double figures.
- Swap Rates. These are industry predictions of future interest rates, set by financial institutions. They can indirectly influence mortgage lenders’ pricing strategies and rates.
- Property Market. The health of the housing market plays a role. When demand for property is high, lenders may increase rates as they only have a finite amount of money to lend at any given time. Conversely, a sluggish market can lead to lenders offering more competitive rates to attract borrowers.
These are the main external factors that influence mortgage rates in the UK. But aside from these, there are also personal factors that will influence the exact rates that are available to you, such as your loan to value ratio and credit score.
What Affects the Bank of England’s Base Rate?
The Bank of England’s base rate is primarily influenced by two key factors – the rate of inflation and the economichealth of the UK. The Bank of England (BoE) adjusts the base rate to try to manipulate and control these two factors.
Inflation refers to the rate at which the price of goods and services increases over time. If inflation is rising too quickly or is above the target set by the government, which is typically 2% in the UK, the BoE may raise the base rate. This discourages borrowing and encourages saving, ultimately aiming to slow down inflation.
The BoE also considers the overall health of the UK economy. If the economy is experiencing a slowdown or recession, the BoE might lower the base rate. This makes borrowing cheaper, stimulating economic activity and encouraging spending and investment.
Due to various factors, in recent years, the UK has suffered from both high inflation and a sluggish economy – requiring a delicate balance when setting the base rate. Ultimately, the Government and the BoE felt that getting a hold of inflation was the most urgent task, so the base rate has been increased 14 times in a row, from 0.1% up to 5.25%.
As of the time of writing, the base rate has been held at 5.25% for the fifth time in a row, but some experts expect it to come down at some point in 2024. That being said, there are no guarantees which way the base rate will go, so below, we’ll discuss what it would mean for your mortgage rate if the base rate were to rise further. To see more about mortgage rates in 2024, please rate our guide, ‘Will Mortgage Rates Come Down in 2024?’
How Much Will My Mortgage Go Up if the Base Rate Increases?
How much your mortgage will go up if the base rate rises, and whether it goes up at all, depends on the type of mortgage you have.
If you’re on a fixed-rate mortgage, your interest rate and monthly payments will be unaffected by any base rate increase. However, when you come to remortgage, you may find that only higher mortgage rates are available to you – so there may be a delayed consequence depending on where the base rate is when your fixed-rate period ends.
If you’re on a tracker mortgage, your interest rate will typically increase by the same percentage as the base rate. This is because tracker rates are usually set at a specific number of percentage points above the base rate, for example, 0.75% above. To learn more about tracker mortgages, please read our guide, ‘What is a Tracker Mortgage and Should I Get One?’
If you’re on the Standard Variable Rate (SVR), your payments will likely increase, but by how much is at the discretion of your lender. The SVR is typically the highest rate you can be on, so it’s always recommended you remortgage to a fixed rate to reduce your monthly repayments. This is even more important if the base rate increases, as you could end up paying much more than you need to.
No matter what type of mortgage you have, we can search a wide range of deals from across the market to see what options you have. You may be able to reduce your monthly repayments and protect against any base rate increases. Simply chat to one of our friendly advisors and we’ll let you know what deals are available to you.
How Can I Reduce My Mortgage Payments?
If you’re worried that you may not be able to afford your mortgage, you may be able to temporarily or permanently reduce your monthly payments using one or more of the following strategies.
Switch to a Cheaper Mortgage. If you’re on the Standard Variable Rate, we recommend you look to remortgage as soon as possible to reduce your monthly repayments. If you’re on a tracker or fixed-rate mortgage, you may still be able to switch to a cheaper deal depending on your circumstances.
Switch to an Interest-only Mortgage. If you’re looking for a short-term reduction in your monthly repayments, you could switch to an interest-only mortgage for 6 months using the Mortgage Charter. You’ll only pay the interest during these 6 months, but then you’ll need to make up for the missed payments over time.
Extend Your Mortgage Term. If you’re looking for a long-term reduction in your monthly repayments, you should have the option to extend the term of your mortgage. Bear in mind though, that doing this may increase the amount of interest you pay over the life of your mortgage.
Overpay Your Mortgage. Overpaying your mortgage is one of the most effective ways to reduce your monthly repayments or the length of your mortgage. Most lenders allow you to overpay by at least 10% each year, either as a lump sum or over incrementally.
Consider an Offset Mortgage. Offset mortgages have a similar effect as overpaying your mortgage – they allow you to use disposable income to reduce the amount of interest you pay. The benefit of these products is that you’ll still be able to access your savings if you ever need to.
To learn more about the options above, please read our guide, ‘Should I Extend My Mortgage Term or Switch to Interest Only?’
Should I Remortgage Now?
Whether you should remortgage now depends on what mortgage you have and how far into it you are.
If you are on a…
- Standard Variable Rate mortgage, we recommend speaking to a mortgage broker as soon as possible as you may be able to save money by fixing your mortgage.
- Fixed-rate mortgage with less than 6 months remaining, we recommend speaking to a mortgage broker to see what rates are available to you and locking in a new deal. If a better rate becomes available before your new deal starts, our advisors can switch you to it free of charge.
- Tracker mortgage, we recommend speaking to a mortgage broker as soon as possible to see if you could save money by switching to a fixed-rate mortgage.
The Bottom Line
Mortgage rates in the UK have been volatile over the last two years, and as of the time of writing, some lenders have increased their rates again. With the Bank of England’s base rate remaining at its highest level for years, many borrowers are asking how much their mortgage will go up if interest rates rise again. If you’re on a fixed-rate mortgage, you should be protected from any increase until your introductory period ends. If you’re on a tracker mortgage that tracks the base rate, your monthly repayments will increase by the same percentage as any increase. If you’re on the Standard Variable Rate, your mortgage will likely increase along with the base rate but by how much is entirely at your lender’s discretion. To protect yourself from any further interest rate hikes, or to potentially reduce your monthly repayments, please speak to one of our friendly mortgage advisors. With access to a wide range of lenders, including specialist lenders and exclusive deals, we’ll see what rates are available to you.
At Michael Usher Mortgage Services, we’ve been helping our local community for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice. The precise amount will depend on your circumstances but will be agreed with you before proceeding.
