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The Bank of England held interest rates at 5.25% in September. The freeze came after 14 consecutive rises since December 2021, when the Bank rate stood at just 0.1%.
It followed broadly positive news from the Office for National Statistics that inflation continued to fall in August to 6.7% (from 6.8% in July and 7.9% in June).
However, inflation in September was unchanged at 6.7%, which could prompt the Bank of England could hike interest rates in a bid to tame inflation further when it makes its next announcement on 2 November.
Top of the rate-rise cycle?
Borrowers looking for a new mortgage deal will be hoping that the next decision by the Bank of England signals the top of a turbulent and painful campaign of interest rate rises.
Mortgage costs first rocketed a year ago after former Prime Minister Liz Truss’ mini-Budget, which triggered market uncertainty and sent the pound crashing to historic lows. It caused mortgage lenders across the board to hastily pull deals, bringing them back to market at much higher prices.
While mortgage costs then underwent a correction, during the spring of 2023, there was a flurry of lenders putting up the cost of deals again as Bank rate continued on its relentless climb in the face of soaring inflation.
However, as inflation has continued to cool, the cost of fixed rate mortgages has been continuing to come down from its peak.
Average cost of popular deals
According to our mortgage partner Better.co.uk, the average cost of a two-year fixed rate deal across all borrower types* today is 5.70%, with three-year deals averaging 5.60%. The average cost of a five-year fixed rate today is at 5.26%.
The average two-year tracker rate mortgage today is priced at 5.71% with the best deal of its kind priced at 5.39%.
A lender’s typical standard variable rate (SVR) is 7.95%, according to Better. This compares to around 4.78% in July last year.
As of 1 October, there were 5,495 residential mortgage deals on the market, according to data provider, Moneyfacts. This compares to 5,338 in September and 5,056 in August as lenders reintroduce deals in a settling market.
Interest rates and mortgages
When the Bank rate rises (or falls), it has an effect on the cost of mortgages.
There are an estimated 1.4 million homeowners (according trade body, UK Finance) on variable rate deals, such as base rate trackers, who have seen almost immediate rises in their monthly repayments following every Bank rate rise.
An average tracker rate rising from 6% to 6.25% would add an extra £30 a month on a £200,000 loan taken over 25 years, for example, with monthly repayments rising from £1,289 to £1,319.
Borrowers on fixed-rate deals, where the interest rate is locked in for, say, two or five years, are sheltered from changes to the Bank rate. However, when their deal expires – as will be the case for around 800,000 mortgage holders during the remainder of 2023 and a further 1.6 million in 2024 – new deals available will be 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
The latest major house price indices are reporting the steepest falls in the value of UK property witnessed in over a decade.
Halifax’s latest house price report (published 6 October) showed that average house prices in September were down by 4.7% year-on-year, the biggest drop since 2009.
However, the pace of monthly falls, at 0.4%, was markedly less than the 1.8% posted in August, suggesting the decline could be slowing. The cost of an average UK home in September stood at £278,601, according to the lender.
Nationwide’s house price report (published 2 October) showed average prices fell by 5.3% in the 12 months to September, again the fastest decline since 2009. On a monthly basis, prices remained flat, said Nationwide, putting the cost of the average UK home at £257,808.
Stamp Duty cuts announced in the ill-fated mini-Budget of Autumn 2022 raised the nil-rate band on the purchase of a property from £125,000 to £250,000.
Why have interest rates been 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 stalled at 6.7% in the 12 months to September. This compares to a peak of 11.1% back in October 2022.
However, current inflation figures should still be viewed in the context of the government’s target for the Bank of England which is just 2%. Andrew Bailey, Governor of the Bank of England, has noted: “There is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that.”
One of the main drivers behind soaring inflation has been the rising cost of energy. However, this is now coming down. Since July the energy price cap, as set by energy regulator Ofgem, has been pegged at £2,074. As of 1 October, the price cap is £1,923.
The energy price cap refers to the annual cost of energy bills for households using the average amount of gas and electricity which pays its bills by monthly direct debit.
While the new cap is the first time since September 2022 it will be below £2,000, it’s still almost 50% higher than in March of the same year when it stood at £1,277.
What mortgage deals are available?
Keeping track of mortgage costs is challenging – especially when rates can change 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 some lenders 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.
How are average mortgage costs calculated?
*Average mortgage costs can vary between sources depending on how the data is gathered. Better.co.uk’s data refers to the average cost of a fixed rate mortgage recommendation that is created and issued to applicants over the last seven days from its panel of over 100 lenders.
The data counts remortgage and purchase loans but excludes SVRs, adverse credit, self-build and shared ownership. Data is collected at the end of each business day.
Better.co.uk targets applicants with a good credit history. Lower loan-to-values (under 85%) account for a significant portion of its business which can translate into cheaper loan rates.
Its average fixed rate costs may therefore appear lower than some others quoted on the market.
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