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How much have interest rate rises added to mortgage costs?

At its most recent meeting the Bank of England’s Monetary Policy committee once again increased base rate, piling pressure onto borrowers as mortgage rates rise. 

The 0.5 percentage point increase, which took the rate to 2.25 per cent – the highest since 2008 – was the Committee’s seventh rise this year as the Bank continues to fight spiralling inflation.

Climbing interest rates have seen savings deals boosted but have delivered pain for mortgage borrowers, who are seeing the cost of new fixed rate deals rise rapidly. 

In December last year, the base rate sat at just 0.1 per cent, with the average five-year fixed mortgage rate at 2.64 per cent. Some borrowers were able to secure rates below 1 per cent.

Borrowers on a fixed rate mortgage may be isolated from the rate rise for now but those on a SVR or needing to remortgage will face a steep climb in their monthly payments

With base rising again home loans are set to increase further, read our guide to fixing your mortgage and the what next for rates.

But the rise will affect borrowers differently depending on what type of mortgage they have.

For those not on fixed rates, the Bank of England decision brings another increase and will see an immediate uptick in their monthly payment with the average standard variable rate now 5.4 per cent, according to Moneyfacts. 

And those on fixed rates are unlikely to escape a hike as they face increased interest rates when their term ends. 

The average rate for a five-year fixed deal is now 4.33 per cent, the same as on offer for a 10-year fix.

We explain how much the mortgage rate rises could add to costs for different borrowers. 

The figures are based on average rates across all loan-to-value levels provided by Moneyfacts and actual rates on offer will vary depending on loan-to-values.

Two-year fixed deal

For the shortest term deal, a two-year fix the rise can be felt sharply. In December the average rate for a two-year fix was 2.34 per cent, it is now 4.33 per cent.  

In the simplest terms, those with a £150,000 mortgage will have paid £661 a month for a deal in December at 2.34 per cent, but now that is £811. This is an increase in annual payments of £1,800.

For borrowers with a £250,000 mortgage, £1,102 monthly payments in December last year have climbed to an average of £1,352. This means an additional £3,000 a year.

Buyers or homeowners looking for a larger £350,000 mortgage will now be paying £1,893 a month on average for a deal compared to £1,543 in December last year. This will cost an additional £4,200 a year.

Five-year fixed deal

The average five year fixed rate mortgage has increased from 2.64 per cent in December last year to 4.33 per cent this month following the base rate rise, according to data from Moneyfacts. 

We break down what that means for different borrowers sizes based on a repayment mortgage over 25 years.

For a five-year fixed mortgage of £150,000 in December 2021 borrowers would have paid an average monthly payment of £683. This has now increased to £820, a rise of £137 a month and costing £1,644 more annually.

For the same mortgage on a £250,000 property the monthly payments have increased from £1,139 in December 2021 to £1,366 in September this year. 

Annually borrowers would be paying an additional £2,724 on their mortgage.

And for those at the higher end of borrowing with a £350,000 mortgage their monthly payments would have totalled an average of £1,595 in December but taking out the same five-year fixed deal now will cost £1,912 a month. 

This comes to an additional £3,804 annually.

10-year fixed deal

The average ten year-fixed rate mortgage has increased from 2.97 per cent in December last year to 4.33 per cent this month following the base rate rise. 

Longer fixed rate mortgages often cost more because of the certainty they provide the borrower but the average rate of 4.33 per cent is now the same as a five-year fix. 

They are also incredibly niche compared to shorter term deals.

Those taking out a £150,000 mortgage on a ten year fixed rate deal in December will have paid an average of £709 a month. 

This has now risen to £820, costing borrowers an additional £1,332 in mortgage costs annually.

For those with a £250,000 mortgage, monthly payments in December were £1,182, according to data from Moneyfacts. 

However, these payments will now have risen to £1,366 costing an additional £2,208 a year.

A £350,000 mortgage will have cost £1,654 a month in December but borrowers taking out a new deal today will be paying nearly £2,000 a month at £1,912. 

Overall they will pay £3,096 more annually than those who fixed their rate at the end of last year.

Standard Variable Rates

Borrowers on standard variable rates feel base rate rises the most keenly as they are automatically passed over to the borrower, whereas those on fixed term deals aren’t hit until they reach the end of their term.

Those with £150,000 of borrowing on a SVR will have paid £825 a month in December but those taking out a new deal for the same amount this month will be paying £912 monthly. This is an additional £1,056 a year.

For a £250,00 mortgage the cost in December was £1,375 a month but this has now climbed to £1,521; costing £1,752 more annually.

Those with larger loans for £350,000 will have been charged £1,926 a month in December 2021 but £2,129 for the same deal this month. This comes to an additional £2,426 a year.

How much more would you pay to fix your mortgage?

Our calculations above are based on average mortgage rates, but actual loan rates depend on individual circumstances and vary by loan-to-value.

Those borrowing smaller sums against their property’s value will benefit from lower mortgage rates, with the best usually on offer at 60 per cent loan-to-value or below, while those with bigger mortgages compared to property value, for example 90 per cent loan-to-value, will pay more.

You can check what fixed rate mortgage deals you could be offered and how much they would cost based on your mortgage size how long you want to fix for with our best mortgage rates calculator, powered by broker L&C.

Locking in a lower rate

Ahead of Thursday’s announcement mortgage brokers were reporting seeing lenders up their rates before the Bank of England announced its decision. 

Many feel that borrowers aren’t prepared for the increases coming and especially those who need to remortgage at the end of a fixed term.

Borrowers are advised to speak to their lender as soon as possible if they are worried about making the payments on their mortgages or the impact of switching deals.

There are things you can do to help avoid being hit with rate rises. 

Some lenders have extended the length of time you can lock in a new deal ahead of the end of your existing mortgage term, allowing borrowers some certainty about the next rate they will be paying. 

Others suggest speaking to your lender about extending the term of your mortgage in order to keep paying a lower rate for longer.

Tom Bill, head of UK residential research at Knight Frank, said: ‘ Almost four million first-time buyer mortgages have been issued since 2009, which is a large group of homeowners who don’t know what it’s like when monthly interest payments rise meaningfully. 

‘There is still backed-up demand in the housing market, which will be prolonged by a stamp duty cut. However, any saving is likely to be eclipsed by rising rates. What the government gives, the Bank of England more than takes away.’

Samuel Mather-Holgate, director at Mather & Murray Financial added: ‘What is interesting is the rate at which interest rates has increased is lower for the longer term fixes. 

‘This indicates lenders think the economy will weaken over that period and interest rates may have to be lowered in the longer term.’

Best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England’s base rate has climbed rapidly.

If you are looking to buy your first home, move or remortgage, or are a buy-to-let landlord, it’s important to get good independent mortgage advice from a broker who can help you find the best deal. 

To help our readers find the best mortgage, This is Money has partnered with independent fee-free broker L&C.

Our mortgage calculator powered by L&C can let you filter deals to see which ones suit your home’s value and level of deposit.

You can also compare different mortgage fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes, with monthly and total costs shown.

Use the tool at the link below to compare the best deals, factoring in both fees and rates. You can also start an application online in your own time and save it as you go along.

> Compare the best mortgage deals available now

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