The Bank of England base rate can directly influence the country’s mortgage rates and savings rates, but there’s some good news for those who are locking in now.

The Bank of England increased its base Rate once more in December 2022, this time by 0.5 percentage points up to 3.5%. The rate is decided by the Monetary Policy Committee (MPC), and the next review is due to take place on 2 February, with many forecasters expecting another rise.

While interest rates often partially mirror the changes made to the base rate, there are other influencing factors at play, including competition. As such, Mortgage rates and savings rates can fluctuate but not always replicate the decisions made by the MPC.

This is what has been seen in recent months, with Mortgage Rates actually declining since November 2022, despite the base rate creeping up. Although mortgage rates remain considerably higher than they were at the start of 2022, the reduction is providing confidence to buyers in the current climate.

Where are mortgage rates now?

The Bank of England base rate has been climbing steadily since the start of 2022, from its historic low point of 0.1% to today’s level. The biggest one-off leap was seen on 3rd November, when it was increased by 0.75% from 2.25% to 3%.

Yet, while many believed this would cause mortgage rates to continue to soar, the opposite is in fact true, according to the data. According to mortgage experts at Uswitch.com, rates have actually been falling since this point.

At present, according to Uswitch using data from Dashly, the average two-year fixed rate mortgage is now 5.39%, based on 75% LTV. For a five-year fixed rate, the average is 5.08%, while a two-year variable rate mortgage comes in at 4.36%. Those opting for the standard variable rate will see averages of 6.79%.

The reason mortgage rates are now going in the opposite direction to the base rate could be that rate rises have already been “catered for” by lenders, and there is now a higher level of stability in the market even if the base rate goes up again.

This is the view of David Gissing, mortgage sales head at London Mortgage Partners. “While the Bank of England’s base rate is anticipated to increase in early February and potentially push slightly higher into the spring, this increase has likely already been catered for in lending rates.

“Swap rates are hovering and hopefully soon to be breaking below 4 per cent, whilst GBP is strengthening and increasing steadily against USD.”

He also has a positive outlook as we draw towards the end of this year: “Based on the above and various economic forecasts my prediction is that we will see fixed rates from high street lenders around 4 per cent by the end of 2023.”

Predicting the future

Of course, as the last few years have taught us, nothing is certain about what direction the market will turn in the future, which is why property investors and homeowners alike are advised to seek independent advice or appoint a broker to find the best mortgage rates for their situation.

Fixed mortgage rates offer much more financial certainty to the borrower, and you can even lock in for as long as 10 years to ensure you know your monthly outgoings for a longer period of time. However, some borrowers are opting for tracker mortgages in the hope that they will save some money over time.

Claire Flynn, a mortgage expert at Uswitch.com, says: “If you’re concerned about your interest rate rising, then you may want to consider fixing your mortgage rate. However, if your current agreement has not yet expired, be sure to be aware of any early repayment fees (ERCs).

“If you plan to remortgage within the next six months, you could lock in a new rate now and change when your current contract expires to avoid an ERC. You can normally switch again to receive a better option if rates decline before your deal ends.

“If you’re worried that they will drop once you’ve obtained a mortgage, you could choose a fixed-rate agreement with a shorter term so that you are locked into the rate for less time or consider a variable-rate mortgage, such as a discount deal.

“Keep in mind, however, that your rate may increase with a variable mortgage, which means you may face higher monthly repayments.”

She also points out that some lower rate products come with fees, which may not be favourable to everyone.

“Looking at the Annual Percentage Rate of Change (APRC) is a good way to compare mortgages based on both the rate and fees. A mortgage broker will also look at all the costs involved to make sure you get the best deal for you and your circumstances.”

“It’s important to note that even if the base rate increases in February, this doesn’t mean all mortgage rates will also rise. Rates for many fixed and variable mortgages have been dropping since February and are currently forecast to continue decreasing.”