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What are mortgage interest rates?
Mortgage interest rates decide how much you’ll need to pay when you get a mortgage.
The interest rate will affect how much you pay towards your mortgage each month. The higher the interest rate, the more you’ll pay every month.
Mortgage rates, like most interest rates in the UK, relate to the Bank of England base rate.
If the base rate goes up, interest rates usually go up by a similar amount. If the base rate goes down, interest rates usually go down.
How to compare mortgage rates
It's easy to compare the interest rate for like-for-like mortgage deals. The lower the rate, the lower the interest.
But mortgage deals are complex. It's difficult to make like-for-like comparisons.
Instead, we need to consider:
interest rates - the amount of interest that's added to the loan
capital repayments - the amount of the borrowed capital you'll be paying back
upfront fees - some lenders will charge an upfront fee on some of their deals
incentives - Some lenders will offer an incentive such as cashback on some of their deals
The true cost is the total amount you'll pay back over the initial period. This takes into account interest, capital repayments and lender fees.
This is a good way of comparing mortgage deals. It makes it less likely that you'll choose a low rate deal that costs more during that initial period.
What is the average mortgage interest rate?
The size of your deposit and the loan to value ratio (LTV) will also affect the mortgage rate. A higher LTV will result in a higher interest rate.
Here are some average mortgage rates from 2019¹:
2 year fixed with 95% LTV - 2.89%
2 year fixed with 75% LTV - 1.60%
3 year fixed with 75% LTV - 1.72%
Tracker rate - 2.36%
Standard variable rate (SVR) - 4.31%
What is the best mortgage rate?
There’s no one ideal mortgage rate, as it depends on many factors including:
how much you’re borrowing
the length of your mortgage term
the size of your deposit
if you pay an arrangement fee
A broker can take your own circumstances into account and talk to you about what rate would work best.
The best mortgage rate will give you the lowest possible monthly repayments. Make sure you do not make up for a lower interest by paying more in other fees or costs.
How to get the best mortgage rate
Having a strong credit score is always good but is even more important when buying a house. This is because it'll let you choose from more competitive mortgage rates and deals.
A good credit score will make lenders more confident that you'll be able to repay each month. This could mean they'll offer you a lower mortgage rate.
Paying a larger deposit helps reduce your mortgage repayments in two ways.
If you save up a larger deposit you’ll need a smaller mortgage to buy a home. The monthly repayments will be lower on a smaller mortgage.
Lenders will often offer a lower mortgage rate if you have a large deposit compared to the size of the mortgage. This is called the loan to value (LTV) ratio.
For example, if you need a mortgage of £160,000 and have a 20% deposit of £40,000, this is an LTV of 80%.
If you have a deposit of £20,000 your LTV would be 90% and the lender is likely to offer you a higher mortgage rate.
You may have to save up for longer, but it could be worth it for a better mortgage deal with a lower interest rate.
Find out how to save up a deposit in our house deposit guide.
Or find out about available government homeownership schemes.
It’s a good idea to do research to see what deals are on offer before choosing one.
A mortgage is a big commitment, so make sure you choose something that’ll suit you and your needs.
Mortgage advisers or brokers can help as they know what lenders offer the best mortgage rates.
Some lenders offer exclusive mortgages that brokers do not have access to. Brokers can also have exclusive rates that you will not be able to get directly from lenders.
Compare deals from different places to avoid missing out on better rates.
On top of any interest you’ll pay every month, there are other costs you should keep in mind.
Some fees could help you decide if it’s a good idea to choose a low interest rate mortgage.
You pay an arrangement fee to the lender to cover the cost of admin work when arranging your mortgage.
The arrangement fee is often higher on mortgages with the lowest mortgage rates.
If you’re borrowing a large amount of money, it may make sense to choose one of these mortgages. You should discuss the options with a broker.
You should also consider fees like overpayment and early repayment fees.
Learn more about true cost and fees when buying a house.
Remortgaging can help at the end of a fixed rate or discounted rate introductory period.
You can avoid moving onto your lender’s standard variable rate by looking at other deals. This could save you money by finding a new deal with a better interest rate.
See how much you could save with our remortgage calculator.
Mortgage types and products
If you’re buying a property there are lots of different types of mortgages and products you can choose from.
The best for you will depend on things like:
if you plan to live in the property or rent it out
how long you plan to live there if it's your next home
affording your mortgage if it goes up
If you’re not sure which mortgage or product is right for you speak to a mortgage broker.
A fixed rate mortgage lets you fix your mortgage rate from between 2 to 15 years.
This means that your repayments will stay the same during that time.
You’ll need to think about how long to fix your mortgage rate. What’s best for you will depend on your personal situation.
Fixed deal interest rates are often higher than discounted variable rate deals.
Learn more in our fixed rate mortgage guide.
A variable rate mortgage has an interest rate that can change. This is the same for tracker mortgages or discounted variable rate mortgages.
This means your repayments can go up or down.
Usually the rate is higher than the Bank of England’s interest rate.
Learn more in our variable rate mortgage guide.
Tracker mortgages track a percentage above the Bank of England’s interest rate.
Your monthly repayments can go up or down.
Discounted variable rate mortgages are linked to your lender's standard variable rate (SVR).
This is a discount rate usually for between 2 and 5 years.
These mortgages usually have the lowest interest rates and smallest monthly repayments.
Your monthly repayments can go up or down.
First time buyers usually take out the same type of mortgages as everyone else.
Lenders often give first time buyers special deals like cashback and fee free mortgages.
Learn more in our first time buyer guide.
If you buy a home to let, you’ll need a buy to let mortgage.
If you rent out the home you normally live in, you may have to switch to a buy to let mortgage from a residential one.
The difference with a buy to let mortgage is that often:
the fee the lender charges to get one is higher
interest rates are higher
you need a deposit of at least 25% of the property's value
Learn more in our buy to let mortgage guide.
There’s no such thing as a bad credit mortgage. But there are lenders who specialise in helping people with bad credit get a mortgage.
These mortgages can be more expensive.
If you’ve got bad credit you apply for a normal mortgage.
Lenders will look at your credit score, and other information to decide if they'll give you a mortgage.
Learn more in our bad credit mortgage guide.
With most mortgages you pay back part of the loan each month, as well as interest.
If you take out an interest only mortgage, you only pay the interest each month.
This means your monthly payments will be less than if you take out a normal repayment mortgage.
You need a plan in place to pay off all the loan when your mortgage ends, such as selling your home or an endowment.
Find out more with our interest only guide.
With this sort of mortgage you pay the interest each month and only part of the loan.
You have to pay the rest of the loan in one go when your mortgage ends.
Some mortgage deals let you pay more or less each month.
Paying more than you need to can be a good idea as you’ll pay less interest in the long term.
Sometimes you can stop paying your mortgage for a while, this is a payment holiday.
A lifetime mortgage is a loan you take out of your home.
The loan, and the interest, is paid off if you:
sell the home
move into residential care full time
Learn more in our lifetime mortgage guide.
An offset mortgage your mortgage links up to your savings account.
Instead of earning interest on your savings, you pay less interest on your mortgage.
If you have a £150,000 mortgage and £30,000 in savings, for example, you’d only pay interest on £120,000.
Your monthly repayments is often based on the full £150,000. So you’d overpay each month and pay off your mortgage quicker.
With an offset mortgage you will:
pay off your mortgage quicker
pay less interest in the long run
pay less tax because you do not earn any interest if the money is offset against your mortgage
How much a mortgage costs
The true cost of your mortgage includes monthly repayments, plus fees and charges from the lender for getting a mortgage.
You can calculate your monthly repayments with our mortgage calculator.
Before you choose a mortgage, it’s important to know the total cost.
Here are some of the fees and charges you might have to pay.
You might have to pay a charge if you remortgage before your current deal ends.
Cost: up to 5% of your mortgage balance
Sometimes lenders charge a fee when you apply for one of their mortgages, which is often called a product or arrangement fee.
The fee is often around £1,000.
A mortgage deal with a higher arrangement fee will usually have a lower interest rate.
A deal with a lower arrangement fee will usually have a higher interest rate.
Your mortgage adviser will consider any product fees before they recommend a mortgage to you.
If your loan is on the large side, they might recommend a mortgage with a lower rate but a higher fee.
And if it’s small, they might suggest a higher interest rate and a lower fee.
It all depends on your circumstances.
You can choose to pay the lender the fee upfront or add it to your mortgage.
If you add it to your mortgage it could be more expensive in the long run as you’ll pay interest on it.
If you pay it upfront, you might not get it back if you do not take out the mortgage, for example, if the owner changes their mind about selling the property.
Cost: often around £1,000
This is the cost of applying for a mortgage.
Cost: £100 to £200
A lender has a valuation done to check what your house is worth. This is in case it needs to sell it if you stop paying your mortgage.
It also needs to make sure that your home meets certain rules in the mortgage.
Cost: free or around £300
This is for sending the mortgage funds to you or your solicitor.
Cost: around £30
This is for ending your mortgage.
Cost: from £50 to £300
These are the legal fees.
Cost: £850 to £1,500
Unlike Trussle, some brokers charge a fee. It can be a set amount or a percentage of your mortgage.
Cost: free or around £500
Are mortgage rates going up or down?
The average interest rates for fixed rate mortgages has been going down over the last 5 years.
But during the coronavirus pandemic, mortgage rates have gone up a bit. They are still very low compared to historic rates.
According to the Bank of England, the average interest rate for 75% LTV mortgages in September 2020 was:
1.74% for 2 year fixed rate mortgage rates in comparison to 1.55% in the same month the year before
1.92% for 5 year fixed rate mortgage rates in comparison to 1.79% in the same month the year before
Mortgage rates, like most interest rates, are affected by the Bank of England base rate.
In March the base rate was cut from 0.75% to 0.25% and then to 0.1% a few days later due to coronavirus. The Bank of England cut the base rate to try and lessen the impact of the lockdown caused by the pandemic.
The last time the base rate dropped to 0.25% was in August 2016. Since then it changed twice. In November 2017 it rose to 0.5% and in August it went up to 0.75% and stayed at that rate until 11 March 2019.
0.1% is the lowest the base rate has ever been. The low base rate has kept mortgage rates low.
When will mortgage rates rise or fall?
UK mortgage rates tend to increase or decrease with changes to the Bank of England base rate.
If the base rate increases, so do mortgage rates. If the bank rate decreases, mortgage rates go down.
There was a meeting of the Bank of England Monetary Policy Committee (MPC) in January 2020. In the meeting, 7 out of 9 committee members voted to keep the base rate at 0.75%.
This suggests that the MPC may vote to change the base rate later this year. But it's difficult to predict when it could happen.
The MPC meets roughly every 6 weeks. There were also meetings on 26 March and the 7 May 2020.
The decision to change the base rate depends on the UK economy up to and after we leave the European Union at the end of 2020.
How many mortgage deals are there?
It’s hard to know exactly how many mortgage deals there are.
This is because lenders often add and remove mortgage deals from the market. Sometimes lenders stop offering mortgages completely.
Many lenders have reduced their range of mortgages because of the coronavirus pandemic, too.
Right now, based on our own data, there are around 5,500 different mortgages offered by lenders that we have access to.
Before the pandemic, that number was around 12,000.
What will happen to mortgage rates after Brexit?
It’s not yet certain what’ll happen to mortgage rates now that Britain has left the EU.
Experts do not think much will change.
Mortgage rates could stay at their current low or fall lower if the Bank of England reduces the base rate.²
Can you change your mortgage rate after fixing?
You can change your mortgage rate at any point, but your lender could charge you a fee.
Some lenders offer fixed rate mortgages with no early repayment charge if you want to switch rates. Most lenders will charge you, so it may not always be cost-effective to switch.
Barclays let you switch rates as early as 90 days before the end of your existing rate period for free.³
Other lenders will also allow this kind of switch.
Before you decide to switch to a new lender or rate, look at all the costs involved. This is to make sure you're not paying more as a whole.
What is Annual Percentage Rate of Change?
You'll often see the APRC alongside the initial rate on mortgage deals.
The initial rate only reflects the rate you’ll pay for that term of your mortgage.
The APRC shows the average interest rate calculated over the entire mortgage term. This includes your initial rate and the standard variable rate the lender will move you onto when your initial rate ends.
Why do mortgage deals show the APRC?
They created the Mortgage Credit Directive (MCD) to protect consumers’ mortgage interests. It meant lenders had to show the APRC on mortgage deals from March 2016.
Is looking at the APRC important when choosing a mortgage?
APRC shows the rate you’ll pay for your mortgage over the entire term including fees.
APRC is not as good at showing you what you pay and when.
This is because it covers the whole mortgage term including your initial rate and the SVR.
You're unlikely to stick with the same deal for your entire mortgage. You're likely to want to remortgage before going onto a higher rate SVR at the end of the initial term.
When deciding on a mortgage deal look at the true cost.
This will tell you the total cost of the mortgage over the initial term, including any fees you may have to pay.
¹ Building Societies Association: Mortgage interest rates at banks and building societies*
² The Telegraph: Will mortgage rates go up after Brexit?
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