How will interest rates affect my mortgage?

The current base rate set by the Bank of EnglandOpens in a new window is 5.25%, up from 5% in June 2023.

Mortgage rates are agreed with your lender and are usually higher than the Bank of England’s base rate. Currently, the cheapest new mortgages offer fixed rates around 5%, over a ten-year term. 

Most people with a mortgage will be affected by the rise in interest rates in some way. How much more you will need to pay will depend on the type of mortgage you have, among a range of other factors.

A Standard Variable Rate is set by the mortgage lender and usually follows the Bank of England’s base rate movements.

While rates may not rise as much as tracker rate mortgages, lenders will likely pass on the interest rate rise onto their customers. This means your payments could increase as soon as your next payment.

Your mortgage lender should send you a letter explaining the new rate and what you can expect to pay. If you have an SVR mortgage and you haven’t heard from your lender, contact them as soon as possible.

There are usually no penalties to leaving an SVR mortgage, so it could be cheaper to switch to a different deal.

Tracker rate mortgages move in line with another rate – usually the Bank of England’s base rate, plus a few percent.

Since the base rate has gone up by 0.25%, your monthly cost will go up by the same amount.

Tracker rates usually last between two to five years before reverting to an SVR, so you could try to switch to a fixed rate if you’re at the end of your term. However, some tracker rates last for the life of your mortgage.

A fixed rate mortgage doesn’t change when interest rates do, which can help when the economy is in turmoil. If you’re on a fixed rate mortgage, your payments shouldn’t change for now.

However, if you’re coming to the end of your fixed rate term, you can speak to a mortgage advisor about re-mortgaging before the rates increase again. It’s worth doing it as soon as possible.

If you don’t re-mortgage, your rate will automatically change to an SVR, which will rise (or drop) with interest rates.

Discounted rates are set slightly below SVR, but only for a certain time. Discounted rates increase when SVR rates and the Bank of England’s rate increase, so you will pay more each month.

Rising mortgage rates can be very stressful, particularly while energy prices and the cost of living are also increasing. If you’re worried, stressed or finding it difficult to cope, our guide on Money problems and mental wellbeing shows you where to get help.

The Bank of England sets the benchmark interest rate. You may have heard it called the 'base rate' or ‘Bank Rate’. While the base rate was low for over a decade, economic uncertainty caused the Bank of England to increase it. Increasing interest rates is one way to try to control inflation.

Changes in the interest rate affect not only mortgages, but also credit cards, loans and how much you can earn on savings. It’s unlikely that you’ll see such an immediate impact on these other products, however.

The base rate has increased five times in 2023Opens in a new window and experts warn interest rates will remain high for at least the next two years. But it’s impossible to know for certain what is going to happen. 

If the increased interest rates have made your mortgage payments unaffordable, it’s important to seek help as soon as possible.

Find out what you can do with our guide on Mortgage arrears or problems paying your mortgage.