The Bank of England is raising interest rates and this has driven up mortgage rates – our calculator lets you work out what this could cost you.
The latest move up was a 0.5 percentage point hike to the base rate, voted for at the February 2023 Monetary Policy Committee meeting
You can work out how much extra you would pay on your mortgage if your lender changes the rate you are paying (or how much you would save if rates came down).
The calculator lets you use your current mortgage rate and see how different levels of rate rises would increase interest and monthly payments.
Enter a figure for the size of the rate rise, for example, 0.25, 0.50. or 0.75, or a negative value (eg -0.25) for a rate cut.
> Check the best live mortgage rates you could apply for with our mortgage finder
What is happening to interest rates
After more than a decade in the doldrums following the financial crisis, interest rates are rising rapidly.
The Bank of England’s base rate, officially known as Bank Rate, has rocketed up from 0.1 per cent in December to 4 per cent now. It is expected to rise again but analysts are divided on whether there will be one or two more rises.
The most recent rise came on Thursday, 2 February, when the Bank’s rate setters added another 0.5 per cent to take base rate from 3.5 per cent to 4 per cent..
This comes as the Bank of England’s Monetary Policy Committee – the group of expert economists who vote on what the base rate should be – looks to try to get inflation under control.
The idea is that by raising base rate, it raises the cost of borrowing and that reduces demand for it from consumers, households and businesses, which slows the economy down.
In theory, this should eventually reduce consumer prices index inflation, which is currently way over the Bank of England’s 2 per cent target at 10.5 per cent in December 2022, according to the ONS
The Bank of England base rate has now hit 4% a level not seen since the financial crisis cuts
Base rate vs mortgage rates
When the Bank of England changes the base rate some mortgage rates will move, but not all.
Fixed deals will remain at the same level until they finish, base rate trackers will move by the same amount as the Bank’s shift, and standard variable rates or other deals linked to them will move by an amount decided by the lender.
The cost of fixed rate mortgages has risen substantially over the past year, driven higher by the Bank of England raising rates. The spike was compounded by the fallout fom Liz Truss and Kwasi Kwarteng’s badly received mini-Budget and saw average two-year fixed rates top 6.5 per cent.
The debt-funded tax cuts in this – since reversed – triggered financial turmoil, government borrowing costs to spike, a pension fund bond sell-off vicious circle, and expectations rates would have to rise by more.
Government borrowing costs, as measured by gilt yields, have since fallen back to pre-mini-Budget levels, with a Bank of England intervention, Kwarteng and then Truss resigning and Jeremy Hunt and Rishi Sunak as Chancellor and Prime Minister, respectively, calming markets.
Nonetheless, fixed mortgage rates remain far higher than they were a year ago at about 2.5 per cent.
Average two and five-year fixed rate mortgages peaked above 6.5 per cent in October but have now slipped back to 5.44 per cent and 5. 2 per cent, respectively, but the best mortgage deals are now nearing 4 per cent.
Read our What next for mortgage rates? guide to get the latest news on what is happening with rates.
Latest interest rates and mortgages news
Read our regularly updated guide to find out more: What next for mortgage rates and should you fix?
Our Mortgages & home section also features all our latest mortgage rates articles.
Savers are benefitting from higher rates – check the best savings rates in our independent tables.
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