What's Happening With UK Mortgage Rates? (2023)

The Bank of England raised interest rates in May from 4.25% to 4.50%. The 0.25 percentage point increase marks the 12th rise since December 2021 when Bank rate stood at just 0.1%. It puts Bank rate at its highest level since 2008 and has applied further upward pressure on the cost of borrowing.

The next Bank rate decision will be announced on 22 June 2023.

Volatility and uncertainty

Mortgage rates suddenly rocketed after last September’s mini-Budget which triggered market uncertainty and sent the pound crashing to historic lows. At the time, major lenders including NatWest, Barclays, Halifax and Virgin Money, all pulled deals and brought them back to the market at higher prices.

While mortgages costs have undergone a correction since then, many lenders have been edging up the cost of deals as interest rates continue their relentless climb.

Average and best costs of popular deals

According to our mortgage partner, Better.co.uk, the average cost of a two-year fixed rate deal is 4.83%. Average costs of a three-year deal stand at 4.56%, while a typical five-year deal today is priced at 4.40%.

These costs compare to highs of more than 6.50% seen back in October 2022.

Better.co.uk says the most competitive deals are 4.30% for a two-year fix, 4.10% for a three-year, and 3.89% for a five-year. The best 10-year fixed rate stands at 4.14%.

The average two-year tracker rate today stands at 5.23%, compared to the leading deal of its kind which is priced at 4.65%.

Lenders’ typical standard variable rate (SVR) stands at 7.26% today, according to Better.co.uk. Average SVRs a year ago in May 2022 were just 4.53%.

At the start of May there were 5,264 residential mortgage deals on the market, according to Moneyfacts. The number has climbed from 4,372 since the start last month, and is nearing the 5,300 recorded in December 2021 before interest rates began to climb.

The number of available mortgages had plummeted to around 2,560 following last Autumn’s mini-Budget.

Interest rates and mortgages

So what do rising interest rates mean for the cost of mortgages so far?

The estimated 1.4 million homeowners (according the UK Finance) on variable rate deals, such asbase rate trackers, will see an almost immediate rise in their monthly repayments following the latest Bank rate rise to 4.50%.

As an example, a tracker rate rising from 4.75% to 5% costs around an extra £30 a month on a £200,000 loan taken over 25 years, with monthly repayments rising from £1,140 to £1,170.

Those on fixed-rate deals, where the interest rate is locked in for, say, two or five years, won’t see any difference in their monthly payments. However, when the deal expires, available mortgage deals are likely to be much more expensive.

You can work out the monthly cost of a mortgage against various interest rates with our Mortgage Calculator.

House prices and Stamp Duty

Halifax’s latest house price report showed that annual house price inflation slowed to 0.1% in April, down from 1.6% in March. It means average UK property prices (£286,896) are similar to the level they were at this time last year.

Nationwide reported that prices fell by 2.7% in the 12 months to April, but were up 0.5% month-on-month. It’s the first monthly increase for over six months, and has led some commentators to suggest the market has stabilised.

The sentiment is echoed by the latest figures from Rightmove, which showed that value of property coming onto the market in May rose by 1.8% (£6,647) to reach a record high of £372,894. This month’s rise is also higher than the historic average for May of around 1%, according to the property portal.

Stamp Duty cuts announced in last Autumn’s mini-Budget raised the nil-rate band on the purchase of a property from £125,000 to £250,000. While u-turns were made on the other tax breaks announced under former Prime Minister Liz Truss, this one remained in place.

Why are interest rates rising?

The Bank’s MPC uses interest hikes as a means of cooling the economy and taming rising inflation. The Consumer Prices Index (CPI) measure of inflation fell to 8.7% in the 12 months to April – a steeper fall than many forecasters expected, but still painfully high, due largely to rising costs in the food sector.

Inflation peaked in October at 11.1% but had since largely been falling. The government’s inflation target for the Bank of England is set at 2%.

One of the main longer-term drivers behind rising inflation is the cost of energy. Since 1 April, 2023 the energy price cap, as set by regulator Ofgem has been pegged at £3,280. The cost refers to an annual bill for a dual fuel household paying by direct debit based on typical consumption.

However, the government’s own Energy Price Guarantee (EPG) which was implemented to protect households from rocketing energy costs, applies instead. Currently, the EPG is set at £2,500 a year.

But Ofgem announced today that the energy price cap will fall as of 1 July from £3,280 to £2,074. As this is below the level of the EPG, the price cap will once again apply and determine the cost of energy for households in England, Wales and Scotland until the end of September. A new cap will then take effect from 1 October.

What mortgage deals are available?

With upwardly-mobile Bank rates, keeping track of mortgage costs is challenging – especially when rates change, and deals can be pulled, on a daily basis.

One simple way is use our mortgage tables, powered by Better.co.uk.

To find out what deals are available at today’s rates for the kind of mortgage you’re after, you’ll need to enter your personal criteria into the table below. Here’s what to do:

• Select whether the mortgage is to fund a house purchase or if it’s a remortgage for an existing property

• Enter the property value and the mortgage amount you require. This will automatically generate a percentage which is known as your ‘loan to value’. The lower your loan to value, the cheaper the mortgage rates available

• Tick the relevant box if it’s a buy-to-let or interest-only mortgage (you’ll need a repayment strategy in place for these deals), or if you’re looking for a mortgage to fund a shared ownership property

• Finally, filter your search by the type of mortgage you want, for example a two- or five-year fix or tracker. The filter is set to a complete mortgage term of 25 years but you can change this if required.

Here’s a live table of the mortgage deals available today.

What else do I need to know?

Mortgage deals offering the cheapest rates usually come with fees attached. You can opt to pay these upfront or add them to the loan. To factor in the cost of the fee, order your the results by ‘initial period cost’ (in the ‘Sorted by’ dropdown).

Alternatively, you can order results by initial rate, lowest fee or monthly repayment – even by the lender’s ‘follow on’ rate that the deal will revert to at the end of the term.

The very cheapest are reserved for bigger deposit amounts, usually of 60% of the property value or more. And, in all cases, you will need a sufficient income and clean credit history to be accepted for a mortgage.

If you want to see what your monthly mortgage payments might look like in different scenarios while overlaid with household bills, our Mortgage Calculator will crunch the numbers.

When can I start a remortgage?

Once issued, mortgage offers tend to be valid for six months, although a handful of lenders such as Skipton Building Society honour offers for up to 12 months. If you are looking to remortgage your current home, this means you can lock in a rate today – at no cost and with no strings attached.