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, are strongly related 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.

Mortgage rates and coronavirus

The recent outbreak of coronavirus (Covid-19) has had widespread impact on the economy.

As a result the Bank of England has made an emergency decision to cut the base rate twice in March, first from 0.75% to 0.25% on 11th of March and then again to 0.1% on 19th of March.

This interest rate change will hopefully lessen the economic shock caused by Covid-19.

The base rate change could be good news if you are looking to remortgage or buy a house because mortgage rates may fall over the next few days and weeks.

If you currently have a fixed rate mortgage your interest rate and monthly repayments won't change.

If you have a variable rate mortgage, such as a tracker or discount rate mortgage, your lender may decide to reduce your interest rate.

We will update this guide when lenders announce if their rates will be changing.

How to compare mortgage rates

Comparing the interest rate between like-for-like mortgage deals is really easy; the lower the rate, the lower the interest.

But mortgage deals are multifaceted. It's difficult to make like-for-like comparisons.

Instead, we need to take a few things into account:

  • Interest rate

    This is the amount of interest that will be applied to the loan.

  • Capital repayments

    This is 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.

True cost

The true cost is the total amount you'll pay pay back over the initial period, taking into account interest, capital repayments, fees, and incentives.

This is a good way of comparing mortgage deals because you're less likely to choose a low-rate deal that actually costs more over that initial period.

What is the average mortgage interest rate?

Average mortgage interest rates can vary as there are different kinds of mortgages, such as fixed, discount and tracker. Usually the longer the fixed rate period, the higher the mortgage 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.

For a general idea, 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%

Start anywhere anytime

What is the best mortgage rate?

There’s no one ideal mortgage rate, as it depends on a number of factors:

To find the best mortgage rate for you you can speak to a mortgage broker like Trussle.

A broker will be able to take into account your individual circumstances and advise you on what mortgage rate would work best.

Ideally, the best mortgage rate will mean you have the lowest possible monthly repayments. But make sure you don’t make up for the lower interest by paying higher fees or costs elsewhere.

Our best mortgage deals this week

These mortgage deals are based on a:

  • £181,600 mortgage

  • £227,000 property (80% LTV)

  • 25 year term

We’ve looked for the best deals based on their true cost.

This includes:

  • capital

  • interest

  • fees

  • cashback

2 year fixed deal

£17,830.96

True cost over initial period

£751.29

Monthly payment

Details

Based on getting a mortgage of £181,600 over a 25 year term with Platform. Includes £0 upfront fee and £250 cashback. 1.79% initial rate reverts to 4.34% SVR after initial 28 month period, costing £970.78 per month for 272 months. Total amount payable is £284,888.28 including interest and fees. That's a 4.50% APRC. True cost based on a 24 month period. This deal was last updated on 9 July 2020.

5 year fixed deal

£45,618.80

True cost over initial period

£760.03

Monthly payment

Details

Based on getting a mortgage of £181,600 over a 25 year term with HSBC. Includes £0 upfront fee. 1.89% initial rate reverts to 3.54% SVR after initial 63 month period, costing £882.49 per month for 237 months. Total amount payable is £257,171.48 including interest and fees. That's a 2.90% APRC. True cost based on a 60 month period. This deal was last updated on 9 July 2020.

How to get the best mortgage rate

To get a better mortgage interest rate there are a few things you can do.

  1. Maintain a good credit score

  2. Pay a bigger deposit

  3. Explore the market

  4. Be aware of fees

  5. Consider remortgaging

Maintain a good credit score

Having a strong credit score is always an advantage, but when buying a house it’s especially useful as it’ll mean you can choose from more competitive mortgage rates and deals.

With a good credit score lenders will be confident in your ability to make repayments each month and offer you a lower mortgage rate.

Pay a bigger deposit

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 usually 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 you would probably be offered a higher mortgage rate.

You may have to save up for longer, but ultimately 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 discover what homeownership schemes could help you further.

Explore the market

It’s always wise to do your research into what the mortgage market has to offer before settling on a deal. 

A mortgage is a big commitment, so make sure you choose something that’ll suit you and your needs. 

To do this, it’s handy to speak to a mortgage adviser or broker as they’ll know what lenders offer the best mortgage rates. 

Some lenders offer exclusive mortgages that brokers won’t have access to. Equally, brokers can also have exclusive rates that you won’t be able to get directly from lenders. 

Compare deals from a range of places to avoid missing out on better rates.

Be aware of fees

On top of any interest you’ll pay every month, there are other costs you should keep in mind.

When applying for a mortgage there are a few fees in particular that could help you decide whether it’s wise to choose a low interest rate mortgage.

The most significant is the arrangement fee which is paid to the lender to cover the cost of admin work when arranging your mortgage.

Usually, lowest mortgage rates are on mortgages with higher arrangement fees.

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 others like overpayment and early repayment fees. Read more on the true cost and fees involved when buying a house in our guide on buying a house.

Consider remortgaging

At the end of a fixed rate or discounted rate introductory period, you may find that remortgaging is a good option.

You can avoid moving onto your lender’s standard variable rate (SVR) by looking at what other deals are available, and potentially save money by finding a new deal with a better interest rate.

Discover how much you could save with our remortgage calculator.

Are mortgage rates going up or down?

The average mortgage interest rate for fixed rate mortgages has steadily decreased over the last 12 months.

Two year fixed mortgage rates (75% LTV) averaged 1.44% in November, compared to 1.75% in the same month last year, according to the Bank of England.

And the average five year fixed mortgage rate (75% LTV) was 1.69%, compared to 2.02% in the same month last year, according to the same data.

Given the recent Coronavirus outbreak, the Bank of England has reduced the base rate from 0.75% to 0.25%, and again a few days later to just 0.1%.

This base rate cut is in response to the economic shock caused by recent events, and has been made in an effort to lessen the blow to borrowers and businesses.

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 0.50% and in August it went up to 0.75% and stayed level at that rate up until March 11th 2019.

0.1% is the lowest the base rate has ever been.

This base rate change may impact your mortgage if banks and lenders decide to reduce their mortgage rates in the next few days.

Average mortgage rates - infographic

When will mortgage rates rise or fall?

UK mortgage rates generally increase or decrease when the Bank of England base rate changes.

If the base rate increases, so do mortgage rates. If the bank rate decreases, mortgage rates go down.

At the last meeting of the Bank of England Monetary Policy Committee (MPC) in January, 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. The next meeting is on the 26th of March, and then the one after that is on the 7th of May.

The decision to change the base rate will depend on how the UK economy performs up to and after we fully leave the European Union at the end of 2020.

How many mortgage deals are there?

It’s difficult to know precisely how many mortgage deals there are as lenders regularly add and remove mortgage deals from the market. Occasionally lenders even stop offering mortgages completely, like Tesco did in May 2019.

Based on our data, it’s safe to say there are about 12,000 mortgage deals offered by lenders in the UK.

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. 

However, experts don’t think it likely that much will change at all. 

In fact, mortgage rates could stay at their current low or fall lower if the Bank of England reduces the base rate.²

Personal Services

Can you change your mortgage rate after fixing?

You can change your mortgage rate at any point, but you may be charged a fee by your lender.

Some lenders offer fixed rate mortgages that have no early repayment charge in place if you want to switch rates. Most lenders will likely charge you, so it may not always be cost-effective to switch. 

For example, Barclays, will allow you to switch mortgage rates as early as 90 days before the end of your existing rate period without charging a switching fee.³ 

Other lenders also allow for this kind of switch.

Before making any decisions to switch to a new lender or mortgage rate, take the time to look at all the costs involved to avoid ultimately paying more.

What is APRC?

APRC stands for the 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, while the APRC shows the average interest rate calculated over the entire mortgage term - including your initial rate but also the lender’s SVR you’ll be moved onto once your initial rate has come to an end.

Why do mortgage deals show the APRC?

The Mortgage Credit Directive (MCD), created to protect consumers’ mortgage interests, made it compulsory for lenders to show the APRC on mortgage deals in 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, so it sounds like it should be useful. However, as the APRC covers the whole mortgage term - both your initial rate and the SVR - it’s less helpful in showing you what you’ll be paying and when.

It’s unlikely you’d stick with the same deal for your entire mortgage lifetime because you’ll almost always want to remortgage before slipping onto your lender’s higher-rate SVR at the end of the initial term.

The most important thing to look at when deciding on a mortgage deal is the true cost - the total cost of the mortgage over the initial term, including any fees you may have to pay.

All mortgage guides, calculators and deals

Sources

¹ Building Societies Association: Mortgage interest rates at banks and building societies*

² The Telegraph: Will mortgage rates go up after Brexit?

³ Barclays

Get a mortgage with Trussle today

  • Fee-free online mortgage broker

  • Rated 4.9/5 on Trustpilot - the UK's top rated online mortgage broker

  • Thousands of deals from 90 lenders

  • Straightforward online application process

  • No waiting for appointments

  • No paperwork

  • Free ongoing mortgage monitoring

Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Trussle holding phone icon

What people are saying about Trussle...