Mortgage Rates

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Current mortgage interest rates in the UK

Mortgage rates in the United Kingdom can sometimes seem bewilderingly varied and complex. The interest rates you pay on your home loan are determined by a number of factors some of which you have a degree of control over while the rest you do not. Below is information on how rates are affected by the type of mortgage that you have, plus content on the different types of mortgage deals that are available.

What is a mortgage? A mortgage is a loan which is secured by the property covered by the mortgage. A secured loan differs from other loans in that if you fail to make the due repayments then the mortgage company like Halifax or Northern Rock can repossess the property and sell it off in order to secure full payment of the loan.

Mortgage loans are commonly repaid over many years, up to 25 years, and the mortgage interest rates are usually lower than conventional unsecured bank loans. A mortgage repayment calculator is a great way to determine quickly the size of the mortgage that an individual can handle.

The first thing which affects current rates is the type of mortgage which you want to take out. Is it a repayment or an interest only mortgage?

Repayment Mortgage

A repayment mortgage is the most common type of home loan in the UK. If you have a mortgage for say 25 years, then each month you will pay off part of the capital of the loaned amount plus some of the interest due on it. In the early part of the loan period the payments will be predominantly interest payments with a small amount of capital being pay off. As the years of repayment continue, the monthly payments will become increasingly capital based with interest payments being a declining proportion of the repayments. The simplicity of the repayment mortgage is that at the end of the payment term, the loan will have been fully paid off. The monthly amounts you pay to the lending company may vary depending on the type of interest rate you pay, but in general are easy to determine using a basic mortgage calculator.

Interest Only Mortgage

This type of mortgage involves only paying the interest on the loan with none of the capital being paid off. This means that your monthly payments will be lower. However; in order for you to avoid the risk of losing your home when the term of the mortgage is complete, you will need to have savings which will be able to pay off the full capital amount of the loan. Another point to note is that because the monthly payments consist entirely of interest payments, they will vary more than repayment mortgage payments if and when the interest rates change.

So what types of mortgage rates are there in the UK?

Standard Variable

This is where the interest you pay on the loan may vary during the course of the loan at the discretion of the mortgage company. Commonly the mortgage interest rates will rise and fall in line with changes in the Bank of England interest rate. Currently, Bank of England mortgage rates are at historically low levels, but there is no guarantee that they will remain at this level, especially if inflation becomes a threat to the British economy. An online mortgage rates tracker is good to look at every now and then to see where they are heading.

The advantages of this type of loan structure are that they are flexible for the borrower, can be paid off, usually without financial penalty, if the borrower takes out a new mortgage loan (remortgage) with a different company at a better rate of interest. Usually remortgage rates are more favorable. Use a mortgage overpayment calculator to see how much you can save by paying off your original mortgage faster.

The disadvantage of these arrangements is that interest payments can become increasingly expensive if general rates rise. For example during a financial crisis in 1992, they briefly rose to 15%, which would be crippling for many households now.


This is another variable rate that is formally fixed at a set amount equal to or above or below the Bank of England or some other base rate. When the base rate changes so does the mortgage rate. Tracker rates are common for a fixed term after which the borrower reverts to a standard variable rate. They are fine for those who can afford an increase while enjoying the benefit of when they fall. They are not so good if an individual’s finances would be severely strained by a large increase.

Discounted Interest

A discounted interest rate is where your monthly payments can rise and fall, but for an initial period you are given a discount on the standard variable rate. As a borrower, you have to be prepared for an increase in payments when the discounted expires if interest rates have risen during tat period.

Mortgage Fixed

This is where the mortgage company and the borrower agree to a fixed level of payments for a period, say, the first two years of the loan. The advantage of such an arrangement is that the borrower knows precisely what the monthly payments are going to be for a fixed period. However; if interest rates fall during the fixed term period the borrower cannot benefit from this. If they rise, then you have to be prepared to pay higher monthly payments after the fixed term expires.


This is similar to a fixed rate mortgage in that, for a fixed period, the loan rates cannot exceed a certain level (a cap), but if interest rates fall during the course of the capped rate, you can benefit.

As you have just learned, there are numerous kinds of mortgage rates available on the market today. Take some time to do a home loan compare search to determine what is best for your given your situation and which financial institution can provide you with the best mortgage deals. Specifically look at the big firm rates from lenders like Nationwide, HSBC, and PTSB.

Early Repayment Charges

With certain types of home loan arrangements, if you pay off the full amount of the loan before its natural conclusion, you may face a financial penalty which may amount to several thousands of pounds. Normally, with a standard variable rate mortgage, you do not face such charges. They are very common with arrangements which have an initial special deal such as an initial fixed interest rate. When you move from a special deal to a standard variable rate mortgage these charges may be retained, so you need to check before you obtain a mortgage quote on any sort of special deal.

Seek Out Professional Advice

With this variety in current mortgage options, it is important to get professional advice from individuals or organisations, (like mortgage brokers) regulated by the Financial Services Authority. Trying to do it all on your own may prove an expensive mistake. Even then check the small print before you sign anything.

This document does not constitute financial advice under the Financial Services and Markets Act 2000. If you require such advice, you should seek appropriate professional advice.