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What is Happening to Mortgage Rates: Market Update

The UK mortgage market is ever-changing, and recent breaking news stories are a testament to this fact. As we head into even more uncertain times, it is essential to remain updated before making decisions.

In this market update, we will inform you of the latest events concerning mortgage rates and how you can properly navigate the situation, whether you’re a first-time or an experienced buyer.

Current State of the Market

In light of the continuous unpredictability within the UK government, there are indications that mortgage interest rates could rise to newer heights. This is coming after the dramatic fall of the pound caused fears for lenders in the market who wanted to re-access the situation with the Bank of England.

As a result, recent weeks have seen banks and building societies pulling mortgage deals. A lot of media outlets have been giving out false headlines indicating that you cannot get mortgages now, and all lenders are pulling out of the market. Even though some banks pulled deals from the market, it was a temporary measure for them to wait to hear from the Bank of England amid a warning that the base rate could rise again almost immediately.

Current State of the Market

According to experts, interest and inflation rates are likely to rise, which will undoubtedly make it challenging to stay in control of mortgage costs for lenders. However, this isn’t a problem for lenders if they can anticipate the rates rising as they will alter the mortgage offers accordingly. The panic in the market last week came around for the reasons mentioned above. 

We now know that since the mini-budget, the pound has recovered somewhat, almost back to the same level it was before the announcement, and many lenders are back in the mortgage market. The most important thing for investors is to get credible advice from a professional advisor in times like this. 

Climbing Interest Rates and Mortgage Costs

For lenders who need to find a way to keep profiting from their mortgage assets, the interest rate situation is challenging to navigate since they also have to consider the affordability of products for customers. 

The cost of new deals would have to rise as the same has happened to long-term borrowing fees. There seems to be no other way considering lenders determine their interest rates using the base rate from the Bank of England. 

The Bank of England recently raised the rate to 2.25% from the previous 1.75%, the seventh time it had done so since December 2021, when the rate was 0.1%. 

While the rate is currently the highest it has risen in 14 years, there are fears it may reach 4.5% by next spring or 6% by next year to tackle inflation. So it is likely that rates will rise, but that doesn’t mean that it’s a bad time for investors as there are plenty of products out there that they can benefit from and options to take advantage of. 

Why Interest Rates are Rising

Rising interest rates are a strategy the Bank of England employs to control rising inflation and the economy through its Monetary Policy Committee (MPC). Meanwhile, the national target for inflation is 2%, but it has already reached 9.9% as per the Consumer Prices Index (CPI).

The weak value of the pound on the currency markets means inflation could also continue to rise, which could necessitate the national bank’s hike of interest rates. 

When they meet on 3rd November, the MPC will deliberate on interest rates, depending on updates around the economy. There’s also the possibility of having an emergency rise in rates, but the bank has hinted that this will not happen, which is why lenders have not further pulled products from the market. 


Another important factor that influences the rising inflation on a long-term basis is energy costs. The cost of energy used to be governed by the energy price cap, which was set to impact prices above £3,500. However, it’s been replaced by Energy Price Guarantee, a cheaper alternative.

The newer alternative will reduce the cost of everyday household bills to £2,500 with a £400 discount on electricity bills from October 2022 to March 2023.

What it Means for Mortgage Rates

Amidst soaring inflation, interest rates, and uncertainty in the market, what should be the expectation for mortgage rates? 

The extent of the specific effect depends on the type of mortgage deal you’re operating and the individual. 

At the moment, most buyers will be safe from the rising rates and their effects because their mortgages have fixed rates. An important thing to note is that by the time the market cools down, clients can get the right advice from an mortgage broker and benefit when new deals do come back on the market.

Those on variable rates will experience an almost immediate impact on their monthly repayment rates, commensurate with the new 2.25% Bank rate.

What it Means for Mortgage Rates

An increase in mortgage costs is difficult for a lot of people, especially people buying for the first time. They may have to work with reduced budgets because of the increased burden of repaying loans with higher interest rates. 

New buyers and those who want to remortgage will also have to deal with increased costs when looking for deals. That’s because the latest interest rates will have been factored into the prices. Increased prices are already reflected on online real estate and property websites.

Moving Forward

Taking steps to shield oneself from the market’s instability may look like the right step to take, but that is no easy feat in these days of economic uncertainty.

More people are choosing longer-term fixed mortgages, but the gap in price is closing down even though borrowers used to incur more fees for a longer period.

The cheapest mortgage rates are accompanied by fees that you can either add to the loan or pay upfront. Also, remember that the most affordable mortgage rates will require you to deposit a larger percentage, around 60% or more of the property amount.

To qualify for a mortgage, you’ll need an impeccable credit history as well as a consistent income flow.

All these may be too much to grasp, even for experienced buyers. That’s why you need the service of a trusted mortgage broker. They will help you locate the best available deals based on the mortgage type you’re interested in.

The mortgage broker will also come in handy to help you stay informed and understand the implications of newer developments in a fast-changing mortgage market.

If you would like informative, professional advice from a trusted regulated mortgage broker, please get in touch, and we can help assist with this service.


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