Mortgage Interest Rates: What’s Going On, and What’s Next?

Alright, let’s have a bit of a chat about mortgage interest rates. If you're like most folk, you've probably been keeping an eye on the news or your bank account with a fair bit of trepidation lately. Interest rates have been all over the place for the past couple of years, and if you're looking for a mortgage or trying to remortgage, it feels like you’re riding a bit of a rollercoaster, doesn’t it?

What’s Happening with Mortgage Rates Right Now?

Right now, mortgage interest rates are still fairly high compared to where they've been in recent years. After a few sharp increases over the past two years — driven mainly by the Bank of England's efforts to control inflation — rates have stablised a bit.

To give you a rough idea, if you’re looking for a fixed-rate mortgage at the moment, you might be looking at something around 4% for a decent deal, depending on your levels of equity and your credit score. It was 5-6% not that long ago.

Now, these rates are not just plucked out of thin air; they’re influenced by all sorts of things. But one of the big drivers, particularly for the deals available to you as a consumer, is something called swap rates.

What Are Swap Rates, and Why Do They Matter?

I hear you asking, "What on earth are swap rates?" Well, swap rates are essentially the interest rates that banks charge each other for borrowing money over a set period of time (like 2 years, 5 years, 10 years). When banks are pricing up mortgages, these swap rates are a major factor in how they set their own interest rates for fixed-rate deals.

If swap rates go up, you’ll typically see mortgage rates go up as well, because it costs lenders more to borrow the money they need to lend to you. And if swap rates go down, mortgage rates might come down too, as it’s cheaper for the bank to get the money they need.

The tricky bit here is that swap rates can be a bit volatile, and they’re often influenced by broader market forces. Things like expectations of future interest rate hikes (or cuts) by the Bank of England, inflation worries, and global financial trends can all have an impact. UK Swap Rates have gone up a little in the last couple of weeks.

What’s the Outlook for Interest Rates in the UK?

Now, if you're wondering where things are headed next — you're not alone. Everyone’s got their ear to the ground hoping for a bit of certainty, but the truth is, no one knows for sure.

Last week the Bank of England lowered the base rate to 4.75%, most of the lenders are already lending at rates below this so I think the base rate needs to come down a bit more to help stimulate the economy. The difficulty for them is they are tasked with trying to keep inflation down at 2% and interest rates are pretty much their only tool. The recent budget by Rachel Reeves has imposed, what I think are, inflationary taxes on employers. Namely the increase in employers national insurance and an increase to the minimum wage. For employers already struggling with increasing costs these increasing taxes are going to mean either redundancies or increases in prices. It is all early days and still uncertain but my money is on lending rates not coming down quite so quickly, if at all in the next couple of years.

So, What Does This All Mean for You?

If you’re looking to buy a house or remortgage, it’s a bit of a balancing act at the moment. Mortgage rates are still higher than we've been used to, but they're not necessarily going up much more in the short term. That means if you can lock in a decent deal now, you might be in a better position than if you wait and hope rates drop — because the reality is that rates could stay higher for a while yet.

For anyone coming to the end of a fixed-term deal, now’s a good time to review your options. It’s also worth thinking about whether a fixed-rate deal or a tracker mortgage makes more sense for your circumstances, depending on whether you think rates will go down or stay level.

Final Thoughts:

It’s a tricky time for anyone looking at mortgages, whether you're buying your first home, looking to remortgage, or just trying to keep up with all the financial mumbo-jumbo, the key is to stay informed and make sure you’re getting the best deal for your circumstances.

And as always, if you’re in doubt, a good mortgage broker can be worth their weight in gold to help you navigate these tricky waters.