Should I fix my mortgage now? UK mortgage rates latest - how much will interest rates rise, will they go down?

The Bank of England has hiked interest rates by the single largest amount since 1989 in a bid to tackle the UK’s record inflation rate.

A 0.75 percentage point increase to the central bank’s base rate was announced on Thursday (3 November), with the overall rate now sitting at 3%. It means interest rates are now at their highest level since the depths of the 2008 financial crisis.

It comes at a bleak time for the UK economy. The Prime Minister Rishi Sunak is likely to introduce a swathe of tax increases and public spending cuts as he seeks to repair the damage done by Liz Truss during her short time in office.

Along with her Chancellor Kwasi Kwarteng, Ms Truss announced a series of unfunded cuts to key taxes that spooked the markets. The value of the pound briefly sank to its lowest-ever level against the dollar which pushed up the cost of government borrowing, while the Bank of England was forced to intervene to prop up pension funds.

With markets predicting the inflationary tax cuts and weakness in the pound would force big interest rate rises, mortgage rates were already soaring by the time the Bank of England announced its latest base rate rise. But where are they now - and should you seek to fix your mortgage? Here’s what you need to know.

What is the Bank of England interest rate?

The Bank of England is the UK’s central bank. It is essentially the steward of the UK’s currency - pound sterling.

Eight times a year, the Bank’s Monetary Policy Committee (a group of senior economists from within the Bank and outside of it) has the chance to alter the base rate - a monetary mechanism that influences how much it costs to borrow money.

The Bank has a target of keeping inflation to 2% - a level that’s deemed to erode the value of the pound just enough so that it encourages spending today because goods and services are likely to be more expensive tomorrow.

When inflation is high, as it is now, the value of the pound goes down too quickly and becomes a barrier to spending in itself. It makes the UK central bank more likely to raise interest rates because higher borrowing costs restrict economic activity.

Businesses borrow money to invest in their operations and expand - activity that tends to be inflationary because it increases demand while supply remains broadly similar.

Interest rate hikes affect the general public too as higher rates usually feed through to the mortgage market. It means monthly repayments are likely to become more expensive for those on standard variable or tracker products.

Lenders use interest rates to maintain the value of a loan. As well as being influenced by the Bank of England rate, the interest rate on loans is also determined by how risky the loan is amongst other things.

What is the latest UK interest rate forecast?

The Bank of England’s MPC has been increasing interest rates gradually since December 2021 because inflation has been rising since last autumn. On 3 November, it hiked them to 3% - the highest level since November 2008.

When Kwasi Kwarteng delivered an inflationary set of tax cuts on 23 September and then hinted even more tax cuts were on their way, market jitters sent the pound to its lowest-ever value against the dollar. Experts initially expected the Bank of England would be forced to implement an emergency interest rate rise to shore up the currency. But the Bank was instead forced to prop up pension funds by buying up government debt.

Having previously forecast that interest rates would peak at around 4.75% by the middle of next year, the Bank of England now believes they will peak at just over 5% by next summer. The markets had previosuly priced in a peak of around 6%, but Rishi Sunak has steadied the ship somewhat.

Although the central bank is expecting inflation to fall back towards 2% from the middle of next year, interest rates look likely to remain above 4% into 2025.

What has happened to mortgage rates?

In the immediate aftermath of the mini budget, lenders withdrew more than 1,600 mortgage products from the market. Research by financial website moneyfacts.co.uk found choice at the start of October was the weakest in more than 12 years. This situation has since eased.

In the immediate aftermath of the mini budget, standard variable rate (SVR) mortgages at several leading lenders rose between 0.2 and 0.5 percentage points, according to UK brokers L&C. Some smaller building societies hiked rates up by a full percentage point. Now, most SVR mortgages are sitting at between 5.5% and 6.5%.

You are likely to be on an SVR mortgage if your fixed deal has ended. Tracker mortgages, which go up and down depending on interest rates, have also risen in light of the latest Bank of England statement - jumping £876 annually (£73 a month).

As lenders have factored in likely future changes to interest rates, fixed deals have increased - although Bank of England Governor Andrew Bailey suggests they should have peaked. Average two-year fixed deals have risen to more than 6% having been 2.3% in December 2021, meaning monthly repayments on a standard a 25-year £200,000 mortgage have risen from around £880 to more than £1,300 - the equivalent of an additional £5,000 a year.

Average five-year rates have also been creeping over the 6% mark - well above the rate of 2.64% that was being widely seen in December 2021.

According to the HomeOwners Alliance, the cheapest current mainstream deals for fixes are 5.49% for a two-year, 5.33% for a five-year and 5.09% for a 10-year.

Should I fix my mortgage now?

With interest rate rises already having come into force this year, homeowners have been seeking out advice in their droves. Citizens Advice Scotland said requests for online advice for mortgage issues had climbed 277% year-on-year as of August.

The latest suggestions of further significant rises are only likely to have contributed to this number. One of the biggest questions out there is whether you should fix your mortgage if you’re on the market for a product - either as a first-time buyer or an existing homeowner.

NationalWorld has asked several experts to see what their views are on fixes. The general current advice is to talk to a mortgage broker.

“We were shocked to see that the lowest 5 year fix is from Skipton Building Society for Intermediaries at 5.33% - up significantly on the best rate for a 5 year fix just last month which was from Halifax at 3.93% for purchases,” said CEO of the HomeOwners Alliance Paula Higgins.

“With such a fast-changing mortgage market, consumers shouldn't risk relying on their lender to find them the best deal. Use a mortgage broker to shop around for the best deal.

“And start the remortgaging process sooner rather than later; it can take six months. Not all lenders’ offers will last for 6 months but by starting the process early you may be able to snap up a rate that is affordable for you. And if rates go down before the deal is done, you could always jump to a better deal for a small rebooking fee.”

Money Saving Expert Martin Lewis’s advice, which was delivered in advance of the latest rates decision, was to fix if you want certainty in your monthly outgoings. But if you could afford to take a risk, he suggested people “hold on a little bit” and seek out a penalty-free SVR rate so that they could take advantage of better fixed deals as and when they arise.

For more of the latest thinking from MSE, visit its website.

NationalWorld will be updating this article as more advice comes through.