Mortgage Interest Rate July 1, 2023

The Bank of England raised interest rates in June from 4.5% to 5%.

The significant increase of 0.50 percentage point was widely feared following the announcement by the Office for National Statistics that inflation remained at 8.7% in May – more than four times the government’s target.

The June rate hike marked the 13th since December 2021 when the Bank rate was just 0.1%. This put bank interest rates at their highest since 2008 and has put further pressure on borrowing costs.

Volatility and uncertainty

Mortgage rates first skyrocketed after the mini-Budget last September, sparking market uncertainty and sending the pound tumbling to historic lows. At that time, major lenders including NatWest, Barclays, Halifax, and Virgin Money pulled the deal and brought them back into the market at higher prices.

While mortgage costs have seen a correction since then, there have been a lot of lenders recently charging transaction fees as bank interest rates continue to rise relentlessly in the face of high inflation (more on this below).

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Average and best cost of popular offers

According to our mortgage partner, Better.co.uk, the average cost* of the two-year fixed rate agreement today stood at 5.71%. The average cost for a three-year deal is 5.45%, while five-year repairs are now at 5.33%. Earlier this week, three- and five-year deals were valued at an average of 5.29%.

Many mortgage lenders have ‘priced’ the latest Bank interest rate hikes into their fees. However, lenders as a whole continued to raise fixed rates and pulled deals.

According to Better.co.uk, the most competitive two-year fixed rate is currently at 4.78%. The best three-year improvement is priced at 4.99%, and the five-year best at 4.82%. The current two-year tracker average rate is 5.42%, compared to 4.99% for the leading deals of its kind.

A typical lender’s standard variable rate (SVR) today stands at 7.36%, according to Better.co.uk. The average SVR a year ago in May 2022 was only 4.53%.

As of June 1, there were 4,967 residential mortgage deals on the market, according to Moneyfacts. The number of available mortgages plummeted to about 2,560 after last fall’s mini-budget.

Interest rates and mortgages

So what does the Bank’s latest June rate hike mean for mortgage costs?

An estimated 1.4 million homeowners (according to trade body, Finance UK) on variable rate deals, such as base rate trackers, will see an almost instantaneous increase in their monthly payments following the Bank’s latest rate hike to 5%.

For example, tracker rates increased from 5% to 5.5% costing around £58 extra a month for a £200,000 loan taken out over 25 years, with monthly payments increasing from £1,170 to £1,228.

Borrowers on fixed-rate deals, where interest rates are locked in for, say, two or five years, will see no difference in their monthly payments. However, when the deals expire – as they will for the more than 500,000 mortgage holders over the remainder of 2023 – the available mortgage deals will be significantly more expensive.

You can calculate your monthly mortgage costs against various interest rates with our Mortgage Calculator.

House prices and Stamp Duty

The latest major house price indexes have all reported falling UK property values.

The National House Price Report, published today (June 30), shows house prices fell by 3.5% in the 12 months to June, slightly steeper than the 3.4% annual decline recorded in May. On a monthly basis, prices edged up 0.1% according to the Building Society, taking the average UK property price to £262,239.

Halifax’s latest house price report (published on 7 June) showed an annual decline in house prices for the first time since 2012. The average cost of a house in May (£286,532) was 1% lower than in May last year. On a monthly basis, prices remained flat, Halifax said.

Zoopla reported a 1.3% drop in prices in the six months to April, although it still reported a positive 1.9% annual inflation.

Stamp duty cuts announced in last Fall’s mini-Budget raised the range of zero rates on property purchases from £125,000 to £250,000. While a flip-flop was made on other tax breaks announced under former Prime Minister Liz Truss, this one remains in place.

Why are interest rates rising?

MPC Bank uses interest rate hikes as a way to cool down the economy and tame rising inflation.

The inflation measure Consumer Price Index (CPI) remained unchanged at 8.7% in the 12 months to May, the Office for National Statistics (ONS) announced today. While this is a far cry from the peak of 11.1% recorded in October, it must be seen in the context of the government’s inflation target for the Bank of England of just 2%.

One of the main long-term drivers behind rising inflation is energy costs. Since 1 April 2023, the energy price cap, as set by regulator Ofgem, has been set at £3,280. Charges refer to the annual bill for dual-fuel households that pay by direct debit based on ordinary consumption.

However, the government’s own Energy Price Guarantee (EPG), implemented to protect households from skyrocketing energy costs, applies instead. Currently, the EPG is set at £2,500 a year.

The energy price cap will drop from 1 July from £3,280 to £2,074. As this is below the EPG level, price caps will take effect once again and determine energy costs for households in England, Wales and Scotland through the end of September.

The new limits will take effect from October 1.

What mortgage deals are available?

With Bank interest rates moving upwards, keeping track of mortgage costs becomes a challenge – especially when interest rates change, and transactions can be withdrawn, on a daily basis.

One simple way is to use our mortgage table, which is powered by Better.co.uk.

To find out what offers are available at today’s rates for the type of mortgage you are looking for, you must enter your personal criteria in the table below. Here’s what to do:

  • Choose what mortgage is for finance the purchase of a home or if it a remortgage for existing properties
  • Insert property value And mortgage amount you need. This will automatically generate a percentage known as your ‘loan to value’. The lower the value of your loan, the lower the available mortgage rates
  • Check the relevant box if a buy-to-let or interest-only mortgages (You will need a payment strategy for this deal), or if you are looking for a mortgage to fund a joint ownership Property
  • Finally, filter your search by mortgage type You want, for example, a repair or tracker for two or five years. The filter is set to 25 year full mortgage term but you can change it if needed.

Here’s a live table of the mortgage offers available today.

What else do I need to know?

The mortgage deals that offer the cheapest rates usually come with a fee attached. You can choose to pay in advance or add it to the loan. To account for cost costs, sort your results by ‘early period cost’ (in the ‘Sort by’ drop-down).

Alternatively, you can order yields based on the initial rate, lowest fee, or monthly payment – ​​even with a lender’s ‘follow’ rate where the deal is refunded at the end of the term.

The cheapest ones are reserved for larger deposit amounts, usually 60% of the property value or more. And, in all cases, you need sufficient income and a clean credit history to be accepted for a mortgage.

If you want to see what your monthly mortgage payment will look like in different scenarios while layering it with household bills, our Mortgage Calculator will crunch the numbers.

When can I start remortgage?

Once issued, mortgage offers tend to last for six months, although some lenders like the Skipton Building Society honor offers for up to 12 months. If you want to re-mortgage your current home, this means you can lock in today’s rates – no fees and no strings attached.


How is the average mortgage fee calculated?

*Average mortgage fees can vary between sources depending on how the data is collected. Better.co.uk data refers to the average cost of prime fixed rate mortgage recommendations issued to applicants based on their circumstances from a panel of over 100 lenders.

The data calculates remortgage and purchase loans but excludes SVR, adverse credit, self-development and co-ownership. Data is collected at the end of each working day.

Better.co.uk targets applicants with a good credit history. Lower loan-to-value (below 85%) is a significant part of its business which translates into lower interest rates on loans.

Therefore, its average flat rate fee may appear to be lower than the others quoted on the mamarket.

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