Interest rates are rising. What does it mean for your mortgage?

If you’ve seen headlines about the Bank of England (BoE) increasing interest rates, it’s natural to wonder what that means for your mortgage. Even changes that look small can influence borrowing costs, monthly payments and the total interest you may pay over time.

This article explains the key ways rising rates can affect mortgage costs and what home buyers can consider when planning their next mortgage deal.

Why interest rates are changing

The BoE sets the base interest rate to help manage inflation. When inflation is higher than the BoE’s target, the BoE may raise rates to encourage saving and reduce spending pressure in the wider economy.

Mortgage rates don’t move in lockstep with the base rate, but base rate changes often feed through to the rates lenders offer. That can mean:

• New mortgage deals may become more expensive to take out.
• Existing mortgages may become more expensive if they aren’t fixed.
• Costs at deal end may be higher if your next rate is based on less favourable market conditions.

How rising rates affect your mortgage bill

The impact depends mainly on the type of mortgage you have.

If you have a variable or tracker mortgage

With variable or tracker arrangements, your interest rate can change during the term. If the BoE base rate rises, your mortgage rate may rise too, which can increase your monthly repayments.

If you have a fixed-rate mortgage

With a fixed-rate mortgage, your interest rate typically stays the same for the length of the fixed period. That means rising rates may not affect your payments immediately—but they can matter when your fixed deal ends and you move onto a new rate.

If your mortgage is coming to the end of its deal

For many borrowers, the biggest effect is at remortgage time. If market rates are higher when your current deal ends, your new repayments may increase.

Why “small” rate changes can still matter

Mortgage interest rates are usually expressed as a percentage, so a change of a fraction of a percentage point can look minor. However, mortgages are large balances over long periods, so the effect can add up.

Even when monthly repayments rise by a modest amount, the total interest paid over the full term can increase.

What to consider when choosing a mortgage in a higher-rate environment

When rates are moving, the “best” mortgage is often the one that fits your circumstances and risk tolerance—not just the lowest headline rate.

1) How long you want payment certainty

Many borrowers choose a fixed rate to reduce uncertainty. The trade-off is that if rates fall later, you may not benefit immediately. If rates rise further, a fixed deal can help protect your repayments for the agreed period.

2) The size of the deposit and your loan-to-value (LTV)

Your LTV (the loan amount compared with the property value) can influence the pricing you’re offered. In general, borrowers with more equity may access more competitive options than those with a higher LTV.

3) Your mortgage term

A longer term can reduce monthly repayments, but it can increase the total interest you may pay. A shorter term can increase monthly outgoings, but may reduce the overall cost.

4) Repayment type and affordability

Whether you’re on a repayment or interest-only basis affects how the mortgage balance changes over time. In a higher-rate environment, it’s important to stress-test your budget so you’re comfortable with repayments if rates are higher than expected.

5) Flexibility features

Some mortgages offer options such as overpayments (subject to product rules). If you expect to have spare cash at times, flexibility can help you manage the balance and potentially reduce interest over the long run.

Planning ahead: budgeting for rate changes

Even if you’re not affected today, it’s worth planning for the possibility of higher repayments in the future. Practical steps include:

• Reviewing your household budget with a range of repayment scenarios.
• Checking when your current deal ends (and what options you may have then).
• Considering how long you want to fix your rate versus how much uncertainty you can manage.

A note on mortgage comparisons

Mortgage offers can vary due to more than just the interest rate. Fees, product features, and the structure of repayments can all influence the overall cost. Comparing deals using the full cost picture can help you understand what you’re really paying for.

General information

This content is for general information only and does not constitute advice. Mortgage availability and pricing depend on individual circumstances and lender criteria.