Indecision could be costly for borrowers hoping for lower mortgage rates to surface. Increases to the Bank of England Base Rate (BBR) could add hundreds of pounds to repayments, according to Moneyfactscompare.co.uk analysis.
Ahead of the Bank of England’s latest interest rate decision due on Thursday this week, Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, has provided further insight into what this means for the property sector moving forward.
“Indecisiveness could be the biggest enemy for borrowers this year. Rate increases can add hundreds of pounds a year to mortgage repayments, as already proven by recent mayhem in the mortgage market. It is highly unlikely that lenders will make substantial cuts in the months ahead until there is a clearer path for future rate setting.
The cost of living is expected to worsen in the coming months, which puts pressure on the Monetary Policy Committee (MPC) at the Bank of England to consider a rate increase.
Economists expect global markets to remain unsettled, with the unrest in the Middle East now over 100 days in. Fixed mortgage rates have come down from the peaks seen in April, but any further unexpected rises will hit those who have sat on the fence before refinancing.
Borrowers could be better off by locking into a new deal early with their existing lender, either three to six months ahead of when a fixed deal ends, but it’s also worth shopping around, too. Remortgage business is expected to be rife this year, and already we have seen the highest monthly rate of approvals since 2022. It is well worth moving off an expensive revert rate, as borrowers could save around £2,800 a year moving onto a fixed rate deal.
New buyers who hesitate to make the leap onto the property ladder could get hit by higher repayments because of their indecisiveness. A 0.25% rise to BBR would result in an increase in repayments of around £450 more over one year, based on a £250,000 loan over 25 years, if the typical rate rises from 5.50% to 5.75%.
A 0.50% rise means £906 more in repayments over the same period (if the rate rises to 6%), yet first-time buyers on higher rates will be hit even harder. The volatility surrounding fixed-rate mortgages sets the tone for borrowers to consider alternatives, such as a base rate tracker mortgage, but they must understand the mechanics of any deal.
On the face of it, a base rate tracker mortgage can look attractive at a time when fixed rates are rising and BBR is held, but economists expect a BBR increase before the year is over, which would directly impact tracker rates. However, there are some tracker mortgages that will allow borrowers to exit the deal early, without a nasty early repayment penalty.
Another alternative is an offset mortgage, which could be ideal for those who feel their savings could help them clear their loan a few years sooner and save thousands of pounds in interest charges. It is always wise to seek advice from a broker to understand the pros and cons of different mortgages and the affordability criteria from each lender, such as those who might consider higher loan-to-income multiples.
It would be unwise for lenders to price fixed rate deals too low, at a time when swap rates have been volatile, they will without a doubt be watching the next BBR decision very closely. The biggest banks (Barclays, HSBC, Lloyds Bank, NatWest and Santander) have their lowest two-year fixed mortgages priced around 0.29% above the two-year swap rate.
At the end of February, before the unrest in the Middle East began, the lowest was priced around 0.30% above the two-year swap rate of 3.33%. With this in mind, unless swap rates fall further, there is little room for more substantial cuts. Shorter-term fixed rates have been hit harder than longer-term deals, as there are hopes for future rate setting to be calmer, but this won’t help the millions of borrowers due to come off a cheap fixed rate deal in 2026.
Borrowers who lock into a five-year fixed mortgage of £250,000 over 25 years would pay around £4,700 a year more now, than taking out the same loan back in 2021. As interest rates are higher than they were five years ago, it will be understandable to see buyers extend their mortgage terms in an attempt to make initial payments cheaper.
However, extending a loan costs more in the long run, and it can be much wiser to overpay a mortgage if they can. We could well see some homeowners downsizing, as they have bargaining power on their sides, with the Royal Institution of Chartered Surveyors (RICS) showing new buyer enquiries are weak and agreed sales activity remains soft.
Affordable housing remains in short supply, and confidence is fragile due to inflationary pressures, but this is exacerbated, with Zoopla showing there are 20-30% fewer homes for rent than pre-pandemic. Renters can become first-time buyers, who are the lifeblood of the mortgage market, but there are not enough homes to quench the thirst of renters or buyers. High demand and insufficient housing stock drive up prices, and higher mortgage rates hit affordability.”
*Average standard variable rate (SVR) is currently 7.13%. Calculations based on a £250,000 mortgage over a 25-year term on a repayment basis. SVR repayment £1,787 per month, versus £1,553 per month on 5.62% two-year fixed rate, monthly difference of £234, which is £2,808 over 12 months.
*The lowest rates as of 12 June 2026: Lloyds Bank – 4.37%, HSBC – 4.38%, Barclays Mortgage – 4.39%, Santander – 4.43%, and NatWest – 4.48%. The average of these low rates is 4.41% – which is 0.29% higher than a two-year swap of around 4.12% on 12 June 2026.
*On 27 February 2026, the two-year swap was 3.33%, the five-year swap rate was 3.51% – Moneyfacts onescreen. Lowest two-year fixed mortgage deals that were available direct to consumers and not tied to a current account: Santander – 3.51%, HSBC – 3.61%, NatWest – 3.62%, Lloyds Bank – 3.66% and Barclays Mortgage – 3.70%. The average of these low rates is 3.62%, which is 0.29% higher than the two-year swap of 3.33% on 27 February 2026.
*The lowest rates as of 24 April 2026: Lloyds Bank – 4.55%, Barclays Mortgage – 4.60%. HSBC – 4.65%, NatWest – 4.65% and Santander – 4.70%. The average of these low rates is 4.63%, which is 0.33% higher than the two-year swap of around 4.30% on 24 April 2026.
