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Will interest rates rise, and what could this mean for mortgages?


If you’re thinking of buying a home, or are coming to the end of your current mortgage deal, you might be wondering what’s going to happen to mortgage rates over the coming months.

The Bank of England will announce their next decision on interest rates on 23 March. The Bank’s Monetary Policy Committee meets around every six weeks to vote on whether to change its Base Rate, and by how much.

Base Rate matters because it affects how much money people can earn on their savings, as well as how much they pay to borrow money, including for mortgages. In February, the Bank raised interest rates to 4% – the highest they’d been for 14 years. The 10 consecutive rises we’ve seen since December 2021 aim to reduce high levels of inflation, which is currently at 10.1%. The Government sets the Bank an inflation target of 2%, which is why it has said it will consider raising interest rates further, until inflation is under control. Currently, market expectations are that the Bank is unlikely to change rates in March, and they’ll therefore remain at 4%. But this will only be confirmed when the Bank’s Monetary Policy Committee makes its announcement at midday on 23 March.

How are interest rate rises affecting mortgage rates? Even though interest rates have been rising, this hasn’t followed through to mortgage rates in the past few months, and how lenders have been pricing their mortgage products. Our mortgage expert, Matt Smith, says: “If we look back at the last three rate rises, the market had forecasted how the Bank was going to react. This meant that lenders baked this into mortgage pricing before the decision was made.” So even though the Bank increased rates, we actually saw mortgage rates reduce overall.

Average mortgage rates for home-movers Average rates for 95% of the mortgage market. Source: PodiumWe’ve seen mortgage rates start to stabilise in recent weeks, with some lenders starting to increase their prices. This is because market analysts were forecasting that interest rates may have needed to stay higher for longer than originally thought, in order to address high inflation. But there are many other factors at play in the markets at the moment, particularly the impact of events around the Silicon Valley Bank in the USA. It will now be a case of waiting to see how the Bank responds to this next week, and then how quickly these things feed through to mortgage rates. If the Bank of England doesn’t increase Base Rate, lenders may start to pass on lower mortgage rates to borrowers.

How could different types of mortgages be affected? If you’re on a fixed-rate mortgage, the good news is that your payments won’t change, at least until the end of your current deal.

But if you’re on a fixed rate product that’s coming to an end in the next six months, you might want to see whether locking in a deal now could be a good option for you. As the cost of borrowing is a lot higher than it was five, or even two, years ago, it’s likely that you’ll be offered a higher rate, and with that, higher monthly repayments. A mortgage broker or your lender’s mortgage adviser will be able to advise you on which options best suit your personal circumstances. And if you’re one of the estimated 15% of mortgage-holders on a tracker or variable mortgage, you’ll see your monthly payments go up fairly instantly. This is because tracker mortgages are normally set against the Bank’s interest rate, plus a percentage. A benefit of a tracker or variable mortgage is that you may see your monthly payments start to drop after rates have reached their peak, and start to come down.

When could interest rates start to drop? Right now, it’s thought that we’re likely to see interest rates peak at about 4.25% later in the year, before they start to come down.

The Bank’s next interest rate announcement will be on 11 May.





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