Mortgages and interest rates

What the experts say

If you’re thinking about a new mortgage deal, it’s worth taking the time to consider the effect changes in interest rates could have.

To fix or not to fix

If you’re thinking about finding a new mortgage deal, you’re probably most concerned about how much you’ll end up paying each month. Interest rates affect the cost of a mortgage, so it’s worth taking the time to consider whether you’re looking for a deal where the rate is fixed for a period of time.

So far, 2017 has been another year of low interest rates. Amid Brexit uncertainty, the latest findings in the Royal Institute of Chartered Surveyor's S UK Residential Market Survey (released in August) highlighted that price growth and sales activity was ‘subdued’ during July. There were some regional differences around the UK, with more resilience in areas such as Northern Ireland, the West Midlands and the South West.

Looking ahead

The Governor of the Bank of England said in August that a tightening of monetary policy – in other words, higher interest rates – will be needed in the next 3 years. But some commentators believe it’s unlikely there’ll be a rise this year.

Data from CACI (March 2017) indicates that between August and December 2017, over £65.5 billion worth of residential mortgages and almost £9.2 billion worth of buy-to-let deals are coming to the end of their terms. That means there could be a lot of people who are focused on finding the best mortgage deals they can find.

In an effort to ensure their mortgage remains affordable in the future, some are already trying to fix their monthly repayments for longer periods – for example 5 or 10 years. Demand for such fixed-term mortgage deals has been robust as people who want to buy or remortgage their home try to decide when to act and for how long to tie in. Remember that with some mortgages, if the borrowing is paid off earlier than agreed, there may be an early repayment charge.

Finding a deal for you

It’s worth bearing in mind that if you choose a longer fixed period, there’s a trade-off – if rates remain low, your repayments could end up higher than they might have been. However, for some homeowners, the ability to fix their mortgage payments years ahead is highly attractive. 

Tony Fullbrook, Head of Mortgage Purchases at Barclays, says: "Doing your own research on what mortgages are available is worthwhile, but if you’re unsure about anything, getting advice is essential. Our recommendation is that you combine your thinking with that of one of our qualified mortgage advisers who can provide a professional opinion based on your needs."

You can also use tools that can help you calculate what effect a change in mortgage interest rates could have on your mortgage, such as our base rate calculator.

One thing is clear. You don’t have to make this decision alone. Whatever conclusion you come to, it’s important to find an affordable mortgage that makes you feel comfortable – whatever happens to interest rates in future.

Always bear in mind that your home may be repossessed if you don’t keep up with the mortgage repayments.