IMPORTANT ANNOUNCEMENT: MyWalletHero is becoming The Motley Fool UK - click here to read more about our name change.

House prices are rising, but mortgage rates offer a silver lining

House prices are rising, but mortgage rates offer a silver lining
Image source: Getty Images

House prices continue to soar, causing some buyers to question their ability to afford a mortgage. If you’re one of these buyers, worry not! There’s some good news for borrowers: mortgage rates are currently at record lows. But should you be rushing to take advantage of these low rates? Here’s what you need to know.

Why are mortgage rates so low right now?

Thanks to the Bank of England’s base rate, which is currently at a historic low of 0.1%, lenders are undercutting each other on price (termed the ‘Mortgage Rate War’).

Borrowers can now access mortgages with interest rates of less than 1% (sub-1% mortgages). In fact, the cheapest rate you can get currently is a two-year fixed-rate mortgage of 0.79%, which is offered by Platform. This undercuts the previous low – a two-year fixed-rate mortgage of 0.87% – provided by Nationwide.

Does a lower interest rate mean you pay less money?

Mortgages with low interest rates can be tempting, but it doesn’t necessarily mean you’ll get to pay less. It’s wise to take into account the full cost of the mortgage before rushing to take advantage of the opportunity.

Many mortgage lenders charge an upfront fee that’s relatively high to cover their losses. It’s wise to crunch the numbers to find out whether a higher rate mortgage deal over a fixed term might actually be more affordable than a tempting fixed-rate mortgage deal with a shorter term. It’s a good idea to use our online mortgage calculator to compare how much different mortgage deals will cost you.

If you find yourself unsure of what deal to go with, it’s always wise to speak to an independent mortgage adviser to get accurate figures and tailored advice.

Do you qualify for a sub-1% mortgage?

Generally, those interested in taking out a mortgage are new buyers and homeowners looking to remortgage. Therefore, you might want to check which mortgage rates or deals apply to buyers only and those that apply to remortgaging only.

Additionally, you may notice that most sub-1% mortgages start from 60% LTV (loan to value), with a few starting from 75% LTV, meaning you’ll need a larger deposit upfront. Higher LTV mortgages are considered high risk and carry a higher rate. This means that if you cannot afford the initial deposit, you might not qualify for the sub-1% mortgage.

Will mortgage rates go up in the UK in 2021?

We’ve already seen that mortgage rates are currently low, with lenders undercutting each other on price. Though there aren’t any signs indicating that mortgage rates will increase, it doesn’t mean it can’t happen. The key factors to keep in mind are inflation and the Bank of England base rate.

The Office for National Statistics recently revealed that consumer price inflation for August 2021 rose by 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July.

Fortunately, the Bank of England’s Monetary Policy Committee voted unanimously to maintain the 0.1% rate on 23 September, meaning mortgage rates may remain low. However, if inflation continues to rise, the Bank of England could step in and increase the base rate on 4 November.

5 ‘must-see’ mortgage tips to help save money…

The mortgage application process can seem overwhelming, and down-right unaffordable at times. So where do you start if you’re looking to save money on your mortgage?

We’ve created this free report, “5 must-see tips to save money on a mortgage” to help you learn where the money-saving opportunities may be…

Just enter your email below for instant access to your free copy.

By checking this box and submitting your email address, you agree to The Motley Fool sending you emails with money tips, along with details of products and services that we think might interest you. You can unsubscribe from future emails at any time. You also consent to us processing your personal data in line with our privacy policy, and our cookie statement. For more information, including how we collect, store, and handle personal data, please read our Privacy Statement and Terms & Conditions.

Was this article helpful?

Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.