Will my mortgage increase?

By Mark Carney. September 27, 2024.

Following three years of continuous interest rate hikes from 2021 to 2023, we’re finally seeing a downward trend. Yet, for many homeowners thinking about remortgaging, questions remain about how these changes will influence their monthly payments.

In this article, we’ll break down the effects of these rate changes on different mortgage types, while offering practical advice for both prospective homeowners and those planning to remortgage in 2024.

What’s happening with interest rates in 2024?

On August 1, 2024, the Bank of England’s Monetary Policy Committee (MPC) made a pivotal decision to lower the base rate to 5%. This came after seven successive meetings where the committee chose to keep rates unchanged.

Before this period of stability, the Bank had implemented 14 consecutive rate increases, pushing the base rate from 0.1% in December 2021 to a peak of 5.25% by August 2023.

When will mortgage interest rates come down?

With the recent base rate cut in August, mortgage rates are anticipated to decline. Typically, when interest rates drop, mortgage rates follow a similar trend. However, it’s worth noting that today’s mortgage rates are still much higher than those we were accustomed to just a few years ago. For instance, the average rate for a two-year fixed mortgage stood at around 2.5% in 2021.

Why are mortgage rates fluctuating?

The fluctuations in mortgage rates throughout 2024 are primarily driven by inflation and broader economic conditions. In the UK, mortgage rates surged in 2022 after the Bank of England began increasing the base rate from 0.1% to curb rapidly rising inflation. The MPC raises the base rate to control inflation by making borrowing more expensive, which reduces spending by consumers, households, and businesses, ultimately slowing down the economy.

The sharp rise in mortgage rates in 2022 was not only a result of the Bank’s rate hikes but was also exacerbated by the mini-budget in September 2022, which unsettled financial markets. As inflation began to cool in 2023, mortgage rates started to decrease, reflecting market confidence that the base rate had peaked and would drop in 2024.

Currently, inflation, as measured by the Consumer Price Index (CPI), is very near the Bank of England’s 2% target at 2.2%. As such, it is expected that mortgage rates will continue to fall.

Will my mortgage go up if interest rates rise?

If you have a variable-rate tracker mortgage, then your payments will rise. This is because a tracker mortgage is directly linked to the Bank of England base rate, so any increase in the base rate will immediately impact your interest rate and, consequently, your monthly payments.

On the other hand, if you have a fixed-rate mortgage, you’re protected from these changes for the duration of your term. Reason being, your interest rate remains unchanged, so your monthly payments won’t be affected by any rate spikes during this period. That said, it’s still important to monitor interest rates, as a significant increase could lead to higher repayments once your fixed term ends and you need to refinance your mortgage.

What do current interest rates mean for remortgaging?

Although there are predictions for further interest rate declines, many homeowners are understandably anxious about the potential rise in their payments when remortgaging. Given that fixed rates have doubled since 2021, it’s not surprising to expect a substantial increase in your mortgage rate. Albeit the specific rates you might encounter depend on various factors, including market conditions and your financial situation.

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Is 2024 a good time to remortgage?

Whether now is a good time to remortgage depends on your individual circumstances. Often, the decision comes down to timing. For example, if your current low-rate mortgage is expiring, you might face a choice between remortgaging or letting your loan switch to your lender’s standard variable rate. In this case, remortgaging could save you money in the long-term, even if it means higher monthly payments initially, due to lower overall interest.

To make the most of your current low rate, consider making overpayments on your mortgage. Overpaying can help reduce your mortgage balance more quickly, which can lead to a lower amount to finance when you remortgage. Just be sure to review your mortgage terms to confirm that overpayments are allowed and to check for any limits or early repayment charges (ERC’s) that could affect you.

Should I speak to a mortgage broker?

Yes, consulting a mortgage broker is a valuable step in navigating the mortgage landscape. Brokers not only help you understand the range of options available, but also offer insights into which deals might best suit your needs, regardless of if you’re a first-time buyer or homeowner seeking a remortgage.

Specifically, they have access to exclusive deals and lenders that you may not find on your own, opening you up to receive more competitive rates and terms. This can be especially beneficial if you’re looking to maximise your savings or find a tailored solution for your unique financial position.