For homeowners, paying a mortgage each month is likely to be the most expensive regular payment you will make, and an expense that can often increase depending on your mortgage rate.
In this blog we are going to look at mortgage rates, what they are and examples of some of the various rates available.
What are mortgage rates?
A mortgage rate is the rate of interest charged on the loan you borrow for a property. The rate is determined by your lender and the most popular rates are either fixed, tracker or standard variable rates.
On a fixed-rate product, your interest rate is guaranteed to stay the same for a set period of time. This can offer peace of mind because you’ll know exactly how much you’ll need to repay each month during this period.
On a tracker product, the interest rate you pay is based on an external rate – usually the Bank of England base rate – plus a set percentage. The base rate is currently 0.75% so, if the interest rate on a tracker mortgage was the base rate +1%, the amount of interest you would pay is 1.75%. If the base rate went up, the interest rate on your tracker mortgage would also rise.
A standard variable rate – or SVR – is a variable rate mortgage that you’ll usually be moved on to once your existing fixed-rate or tracker ends – unless you choose to switch to a new deal. Mortgage lenders set their own standard variable rate, and this, along with your mortgage repayments, can go up or down at any time.
Mortgage rates will also vary for borrowers depending on their credit rating.
What are the typical mortgage rates available?
Different lenders will offer different rates, with some being better for first-time buyers who have a 95 per cent loan-to-value (LTV) rate, which is a higher risk for lenders, and some offering lucrative terms for those with larger deposits or equity.
There are a wide range of products available from many lenders, including niche mortgages, buy-to-let mortgages, as well as products for those who are remortgaging. With such a variety of mortgage rates and products available, it’s important to seek expert advice to find the mortgage that is right for you.
What mortgage rate lengths available?
There are four typical lengths of times available for mortgage rates. These are – two years, three years, five years and 10 years.
The rate of interest charged will vary, based on the length of the product chosen. Generally speaking, the longer the fixed-rate or tracker rate, the more it will cost.
There has recently been a rise in the number of 10-year products on the market, with many lenders including Barclays introducing these products.
How does the current market look?
Looking at the latest month-on-month data, Moneyfacts.co.uk has found that competition within the mortgage market remained strong, with two-year fixed mortgage rates remaining relatively static, falling by 0.01 per cent to 2.44 per cent, while the average three and the five-year fixed rate remained unchanged at 2.60 per cent and 2.75 per cent respectively.
The average 10-year fixed-rate however, is the biggest mover, decreasing by 0.07 per cent from 2.98 per cent to 2.91 per cent.
The analysis suggests that homeowners are continuing to benefit from increased competition and low rates.
*Your home may be repossessed if you do not keep up repayments on your mortgage*