UK mortgage rates are soaring – what can you do? (2022)

Rates on new mortgages continued to climb this week as the fallout from the mini-budget continued to reverberate through the housing market. The higher rates on offer are bad news for first-time buyers and those looking to remortgage, who face much bigger monthly payments. So how bad are things, and what can you do?

So what has been happening this week?

Most of the mortgage lenders that effectively pulled down the shutters in the wake of the financial turbulence sparked by the 23 September mini-budget have now re-entered the market. For example, NatWest relaunched deals on Monday, Barclays on Tuesday and Halifax on Wednesday.

But while there had been hopes in some quarters that the government’s 45p tax U-turn on Monday, and the slightly calmer market conditions that have followed, might translate into slightly cheaper new fixed-rate mortgage deals, this has yet to happen. In fact, this week new mortgage products continued to become even more expensive. The average new two-year fixed rate – which was 4.74% on the day of the mini-budget – was at 5.75% on Monday and by Friday had climbed to 6.16%, according to the data firm Moneyfacts. It was a similar story with five-year fixes, with the average rate on Friday standing at 6.07%.

But you can get better rates than those averages. At the time of writing, the Halifax was offering new two-year fixes for those remortgaging from 5.06%, with rates on five-year fixes starting from 4.46% – so quite a bit lower. However, deals are coming and going at remarkable speed at the moment.

(Video) Martin Lewis Answers All Your Mortgage Questions | Good Morning Britain

Rising average mortgage rates may partly reflect the fact that the government U-turn only happened on Monday, so – taking an optimistic view – lenders will need a little time to properly respond. They are under pressure to reduce their new product rates after the chancellor, Kwasi Kwarteng, met banks on Thursday, and if the financial markets continue to stabilise, that will obviously help.

UK mortgage rates are soaring – what can you do? (1)

Some brokers have predicted lenders will start trimming their rates over the next week or fortnight, assuming the markets remain relatively stable.

How monthly costs are soaring

Let’s take the example of someone who, in October 2020, took out a two-year fixed rate deal priced at 1.59% (a pretty good rate then). It’s a £200,000 25-year repayment mortgage. They have been repaying £808 a month. Let’s say they now remortgage on to a two-year fix from Halifax at 5.06% (we’ll now assume £190,000 and 23 years left but everyone’s situation will be different). Their new payment would be £1,166 – an extra £358 a month. They would actually be better off, financially speaking, taking Halifax’s new five-year fix, which is a fair bit cheaper at 4.46%, as then the new payment would be £1,102.

What is the best advice?

(Video) More mortgage providers pull deals over rate rise fears

For those who will need to remortgage at some point, clearly a lot depends on when your current deal ends. It is estimated that about 300,000 borrowers come off a fixed-rate deal every three months.

However, many of those worried about the current situation have deals that maybe do not expire for another year or more.

The mortgage broker Private Finance says it is encouraging those on a fixed rate with a term of 18 months or less “to get in touch and consider their remortgage options now”. Talking your options through with a broker is definitely a good idea at the moment.

The obvious problem is that we do not know whether mortgages are going to become more expensive or cheaper over the coming months.

UK mortgage rates are soaring – what can you do? (2)

Some people will be wondering about bailing out of their current deal early and grabbing another one now, before prices go up even more. However, most fixed-rate products have early repayment charges (ERCs) during the initial fixed period, which will sometimes be thousands of pounds. Plus, of course, you are leaving a low rate early and moving to something more expensive.

(Video) UK Mortgage Interest Rates are Flying UP?!! | APW Market Wrap

The good news is that a lot of lenders’ mortgage offers are valid for up to six months.

So one option is that homeowners whose existing deals still have a way to go but who are concerned could hedge their bets by reserving a deal now and waiting to see how things pan out. If home loan rates have gone down, you are not committed to the mortgage offer. If rates have soared even higher, you can at that point do the maths to see how much money you would have to pay to quit your current deal early versus what you might theoretically save by signing up for the offer deal rather than paying a higher rate. But that is not a straightforward business.

David Hollingworth at the broker L&C Mortgages says that rather than stumping up cash to pay an ERC, you might be better off using that money to try to reduce your current mortgage debt.

He adds that if you are sitting on a low rate and have the funds, you could start putting a bit of money aside in a savings account now, ready for when your monthly bill does go up – savings rates are a lot better than they were – or, alternatively, you could overpay your mortgage, though there will be limits on how much you can pay off.

Clearly, borrowers also have the option of going on to something like a tracker deal, but with predictions of multiple base rate rises to come, any initial advantage could quickly evaporate.

For first-time buyer borrowers, it is clearly a very challenging time. A lot depends on whether, and by how much, house prices fall. There were warnings this week from some brokers that low-deposit 95% mortgages could be the next casualty of the financial uncertainty because of the risk of buyers ending up in negative equity. Some fear the number of deals could be slashed; others that they could disappear completely for a while, as happened during the first few months of the coronavirus pandemic in 2020.

(Video) Why U.S. Mortgage Rates Are Soaring - Need2Know #shorts

Are lenders withdrawing offers?

Chris Sykes at Private Finance says: “There’s no need to panic about the current situation with regard to cases which have had an offer accepted, as long as the mortgage application is in place. There has been a lot in the press about lenders pulling offers; however, this is not the case for normal residential transactions, which will be the vast majority.

“There have been very few examples of lenders pulling rates for clients post-application. The only examples of this are in unregulated commercial and BTL [buy-to-let] lending situations.”

What else can I do?

UK mortgage rates are soaring – what can you do? (3)

In these challenging conditions, with everyone a bit jumpy, one of the key things for mortgage applicants – particularly first-time buyers – is to make sure your credit record and finances are in as good a state as possible.

(Video) UK house prices go into reverse

Ideally, get a copy of your credit file from one or all of the credit reference agencies (the three main ones are Equifax, Experian and TransUnion) before you apply, go through it carefully and, if possible, take any action needed. Pay down outstanding debts and look at what you can cut from your spending.

“Borrowers need to be careful in tough times, as something as small as getting a CCJ [county court judgment] by refusing to pay a £60 parking fine, or missing payments on utility bills after moving out of a property, can affect the lenders at a borrower’s disposal, and affect their interest rates if these were recent and they have little other credit presence,” Sykes says.

FAQs

How can you protect yourself from rising mortgage rates? ›

Switching your mortgage to a fixed rate – especially if you are currently on the lender's (often more expensive) standard variable rate – will lock the mortgage down and give you a period of budgeting certainty. Even if the base rate rises your monthly payments will stay the same.

What happens to my mortgage if rates go up? ›

Fixed payments with a variable interest rate

If the interest rate goes up, more of your payment goes towards the interest, and less to the principal. If the interest rate goes down, more of your payment goes towards to the principal. This means, you pay off your mortgage faster.

Can you ask your mortgage company to lower your rate? ›

There is one way you can get a lower mortgage interest rate without refinancing, however. A mortgage modification allows you to change the original terms of your home loan due to a financial hardship. Your lender may adjust your loan by: Extending your loan term.

Can you negotiate mortgage rates UK? ›

If the bank you prefer doesn't have the lowest rate, you can negotiate the mortgage rate down. Ask the lender if they can do better on the rate they provided. Or, you can let them know another bank has offered you a lower rate and ask if they can match or beat it.

What will happen to interest rates in 2023 UK? ›

Financial experts at the Bank of England (BoE) expect the key rate to reach 6% in 2023 – far above the 1.5% rate projected just months ago. This has been priced into the interest rate "swaps market", which banks use to price the mortgages offered to consumers.

How do people survive high interest rates? ›

  1. Invest in Banks and Brokerage Firms. Banks and brokerage firms earn money from interest. ...
  2. Invest in Cash-Rich Companies. ...
  3. Lock in Low Rates. ...
  4. Buy With Financing. ...
  5. Invest in Technology, Health Care. ...
  6. Embrace Short-Term or Floating Rate Bonds. ...
  7. Invest in Payroll Processing Companies. ...
  8. Sell Assets.

Will interest rates go down in 2023? ›

According to the organization's researchers, if a recession were to materialize in the first half of 2023, "mortgage rates would fall around 30 basis points from the baseline forecast level of 5.2%." That means rates are likely to return to levels seen during the early months of 2022 when 30-year fixed rates hovered ...

Is it better to buy a house when interest rates are high? ›

Rising interest rates affect home affordability for buyers by increasing the monthly mortgage payment. Despite how it seems, there are benefits to buying when interest rates rise. Less buyer competition forces home sales prices down, opens up more choices for buyers and can reduce buyer risk.

How fast will interest rates rise in 2022? ›

In updated projections, the Fed signaled plans to lift rates by another 1.25 percentage points before the year is over, bringing the federal funds rate to 4.25-4.5 percent before 2022 comes to a close.

How do you ask for a lower rate? ›

Here's how to do it:
  1. Start With the Card You've Had the Longest. It's a good idea to ask for lower rates on all your credit cards if you have more than one. ...
  2. Ask for a Temporary Break if Necessary. ...
  3. Try Again. ...
  4. Call the Rest of Your Issuers—and Put Your Savings to Use.
17 Jan 2020

What is a good interest rate on a house? ›

Right now, a good mortgage rate for a 15-year fixed loan is in the low 5% range, while a good rate for a 30-year mortgage is generally in the low-to-mid 6% range. At the time this was written in Oct. 2022, the average 30-year fixed rate was 6.66% according to Freddie Mac's weekly survey.

How do you negotiate a lower interest rate? ›

Call your card provider: Contact your credit card issuer and explain why you would like an interest rate reduction. You could start by pointing out your history with the company and mention your good credit or on-time payment history.

Should I lock my mortgage rate today 2022? ›

The Bottom Line

As of 2022, locking your rate sooner than later is likely to give you the best interest rate, as the Fed is expected to raise rates several more times this year if the job market continues to stay strong. Freddie Mac. “30-Year Fixed-Rate Mortgages Since 1971.”

How long should I fix my mortgage for 2022? ›

Fixing for 2 - 3 years is recommended

Some people plan to keep rolling at one year fixed interest rates and that is a good strategy. However, experience tells us that there comes a point in every interest rates cycle where people panic about where the one year fixed rates might go as they climb.

Can I lock in a mortgage rate? ›

You can choose to lock in your mortgage rate from the moment you select a mortgage, up to five days before closing. Locking in early can help you get what you were budgeting for from the start. As long as you close before your rate lock expires, any increase in rates won't affect you.

Will mortgage rates go down in 2024 UK? ›

Mortgage rate predictions for the next 5 years

The average rate on a five-year fixed mortgage rate is forecast to rise by 0.3 per cent this year, rising further to just over one per cent next year, and over two per cent in 2024.

Will mortgage rates go down in 2024? ›

The average 20-year mortgage rate today is 4.825%. Prices in the futures market indicate that the Fed will cut rates in late 2024, sending the fed-funds rate down to 2.25%, the equivalent of two quarter-point cuts from the expected peak.

Will mortgage rates go down in 2025? ›

In fact, a recent New York Federal Reserve housing survey found that 30-year mortgage rates are expected to rise to 6.7% before 2023 and to 8.2% by 2025. And some experts predict it's going to go even higher.

Should you buy a house when interest rates are high? ›

Rising interest rates affect home affordability for buyers by increasing the monthly mortgage payment. Despite how it seems, there are benefits to buying when interest rates rise. Less buyer competition forces home sales prices down, opens up more choices for buyers and can reduce buyer risk.

Is it 3.5 times your salary for a mortgage? ›

Loan-to-income limit (LTI)

There is a general limit of 3.5 times gross annual income for all new mortgage lending for principal dwelling homes, with some scope for flexibility. This includes lending to people in negative equity who are applying for a mortgage for a new property.

What do rising interest rates mean for home buyers? ›

As rates go up, there are several things you need to consider: There may be fewer interested buyers. Higher rates mean more people could be priced out of the current market. Because of this, it could take longer for offers to roll in on your home and you may have to wait a while for it to sell.

Do you need 20% down on a house? ›

You no longer need a 20% down payment to buy a home. It's possible to buy a home with as little as 3% down, and you may even be able to buy a home with no money down if you qualify for a VA or a USDA loan.

Videos

1. Americans struggle with high home prices, soaring interest rates
(CBS News)
2. UK's financial woes: High interest rates impact property market
(Al Jazeera English)
3. UK HOUSE PRICE CRASH 2022 - No Way Back Now!
(Honest Money)
4. UK Interest Rate Rise to 1.75% what happens now?
(Niche)
5. Why Bond Yields Are a Key Economic Barometer | WSJ
(Wall Street Journal)
6. How does raising interest rates control inflation?
(The Economist)

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