Putting current mortgage rates in perspective – IMLA’s Kate Davies reassures advisers with her detailed analysis of today’s challenging mortgage market 

by | Mar 17, 2023

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Successive base rate rises and the highest inflation rates in almost 40 years have caused consumer concern about the affordability of mortgage rates throughout 2023 and beyond.

in this article for IFA Magazine, Kate Davies, Executive Director at The Intermediaries Mortgage Lenders Association (IMLA) looks to reassure intermediaries that there are a number of factors which suggest that the situation is not as bleak as it perhaps may seem. 

In September last year, the Truss government’s unexpected ‘mini-budget’ sent shockwaves through the UK economy, compounding issues with rising inflation and causing the Bank of England to further increase Bank Rate. This ‘black swan’ event spooked the wholesale markets, resulting in short term spikes in swap rates, which required lenders to sharply increase fixed-rate mortgage pricing at a time when their standard variable rates were also rising. 

This period of uncertainty and rising interest rates inevitably triggered concern amongst consumers, with those needing to remortgage facing the prospect of having to pay potentially hundreds more pounds a month in interest. However, this period of market volatility was short-lived and the mortgage market has since settled down, with five-year fixes falling back to an average rate of 4.74% in mid-March. 


Ripples of consumer unease still remain, however, and rates are certainly higher than they were at the beginning of last year, but it’s important that, as an industry, we try to put the current situation in perspective. 

For sector veterans, higher mortgage rates are actually nothing new, and there are positive signs that the market can weather the challenges that are predicted. 

Why many borrowers won’t face a sharp rise 


There is a common misconception that mortgage rates are based solely on the Bank of England base rate, which has already increased nine times since the beginning of 2022. Tracker mortgages will certainly be more influenced by these rate rises, but this type of product is in the minority – there were only 715,000 households on tracker mortgages in January 2023, according to UK Finance. 

As many intermediaries will know, most of their customers will be on fixed-rate mortgages – 83% of borrowers as of July 2022 – and it is swap rates that play a more important role in determining the interest rate on these products. 

Swap rates rose sharply following the mini-Budget but, as a result of the Sunak government’s focus on calming markets and the expectation that inflation will fall rapidly later this year, we have seen 


swap rates fall back, enabling mortgage lenders to cut rates on fixed-rate products despite higher short-term interest rates. 

A large proportion of borrowers on fixed-rate mortgages will not need to remortgage in the immediate future, so should remain largely unaffected by the short-term volatility in swap rates. 

Lenders keep rates competitive 


The mortgage market is still a highly competitive space, and lenders will be focused on keeping their rates as low as possible for as long as possible to ensure their products remain attractive to borrowers. There is general acceptance that we will not return to the pre-Truss levels of super-low interest rates, which were already beginning to creep up from the end of 2021 when the Bank of England started to raise Bank Rate in response to rising inflation. 

As the market settles down into a more realistic environment, intermediaries will also have an important role to play in reassuring clients that slightly higher rates are not to be feared – we have been here before. 



It is understandable that, for a new generation of borrowers which has grown up with exceptionally low inflation and interest rates – there may still be concerns. With such low rates, the only way was up – and the question is, might rates rise further and if they do will they become unaffordable. 

But the simple fact is that the last decade of mortgage rates has been something of an anomaly. 

For those of us who have been in the industry since before 2008, today’s world of rising mortgage rates is not an unfamiliar environment. Over the last 25 years, the average rate on a five-year fix was 5.62%, peaking at 8.87% in 1998. Meanwhile, IMLA’s 2023 ‘New Normal’ report on the mortgage market predicts that mortgage rates will average around 5.5% by the end of 2024, once again returning very close to this long-run average figure. 


This will undoubtedly create challenges for some borrowers, who will need help from lenders and intermediaries to find a way forward, but the fact remains that the return of higher interest rates is just a process of re-normalisation in the market, and in reality is something that the industry has experienced – and worked through – many times before.

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