Why are mortgage rates going up? Why it’s not all doom and gloom

Currently, the media only presents the negatives of housing market mortgage rates and the change to mortgage payments, but many positives have come from these changes that aren’t being addressed.

Why do mortgage rates go up?

When the economy heats up and inflation increases, central banks can respond by increasing interest rates. This is done by banks to reduce inflationary pressures but by doing this, it alters general interest rates, which then causes mortgage rates to rise. And because mortgage rates are often influenced by long-term bond yields, this can result in higher mortgage rates.

An expert’s insight on housing market mortgage rates

To provide positivity in a sea of negativity, we spoke with a mortgage expert, Andrew Mannion, New Build Development Director from RSC New Homes, who answered some important questions about mortgages and interest, UK housing market predictions, and what these mean for interested buyers.

UK housing market predictions: A positive roundup

1.    Although the base rate is going up, mortgage interest rates are gradually coming down.

2.    There are longer mortgage terms now than ever before, you can now get up to a 40-year term as opposed to the standard 25 years.

3.    Lenders are doing everything they can to help more people obtain mortgages. 

4.    Incentives that are available in the current market from home builders would offset that rise in cost, e.g. 5% deposit contribution, fully specification homes, £10k deposit contribution – things that weren’t available when the market was stronger and the rates were lower.

5.    Guarantor mortgages are now available without the guarantor being on the deeds of the property. 

6.    RSC offers ‘rate reviews’, checking your mortgage interest rate every 30 days. If they can get you a better rate before completion, they’ll switch you onto that rate, even if you have exchanged contracts.

7.    95% of mortgages are more available now than ever, back in the credit crunch lenders would only loan 75%. 

8.    Green mortgages are available to homes with A or B EPC ratings, which is applicable for all Strata new build homes

What are the positive changes for mortgages/interest?

“There are some really good positive messages because, for instance, in the press today, inflation has come down. It isn't as low as we want it to be, but it’s going in the right direction! The other positive thing is whilst interest rates are going up (the base rate has increased), the rates on offer to customers seem to be going on a downward trend.”

“The reason it's on a downward trend is if the lenders are looking just for your knowledge. So if the lenders are looking at offering a fixed rate mortgage today for five years, they’ll look at what the markets are telling them that the interest rates will potentially be over a five-year period.

And if the lenders are now reducing the rates, the markets are telling them that over those five years, it's not going to cost as much as where it is now, so they can offer a more competitive rate. It's actually reducing, even though the base rate's going up, because the medium-term outlook is that base rates should come down at some point next year.”

Are lenders doing more to help with mortgage payments?

While mortgage interest rates have gone up, lender support has hugely increased.

“The lenders are doing everything they can to support first-time buyers and home movers by offering longer mortgage terms than they ever have done. Most of the mortgages we do now are over 40 years rather than 30 or 35 years.

“For instance, when Andrew first started at RSC New Homes, there were just “25-year mortgages available. So the lenders are doing everything they can to try and keep those payments competitive.”

What are other positives you've seen?

“Something we seem to forget is that builders are now offering incentives. When the market was good and interest rates were cheap, you weren't getting those discounts. Those discounts are offsetting, as it's not costing them anymore because they're getting a discount off the house.

“So, if you put that discount off the house onto the mortgage payments over, say five years, it's not actually costing you any more to buy a house. For instance, at RSC, we tell clients that a year ago, they wouldn’t have got a 5% discount on a home, you wouldn't have got an up-spec house that they’d paid £10,000 towards and benefit from full tiling in their bathroom, an upgraded kitchen or your turf.

“Whereas now, for the lender, the builders are offering these incentives because they know it's costing you more in your back pocket with the mortgage rates being higher. But as soon as the market picks up, there's more demand there and as soon as rates start coming down, these incentives will probably drift away - because that's what we see time and time again.” 

What are some helpful ways to tackle rising housing market mortgage rates?

“There are options like guarantor mortgages which allow parents to be put on the mortgage to help. It’s helpful factors like guarantor mortgages that you don't see in the press, but are highly beneficial for those looking to buy a home.”

This means that:

  • Mum and Dad can go on the mortgage, but the house will just be registered in the children’s names. 
  • There’s no extra 3% stamp duty for parents helping their child(ren) out because they're just buying an additional property.

“So, parents can sit in the background to support their children, with plenty of parents being more than happy to say to kids, listen, we'll give you an, we'll give you 500 pound a month towards your mortgage so you save your deposit for a new build home.”

Why would someone get a mortgage now?

“Potential buyers are thinking “Why would I exchange now if rates are coming down if I might get something cheaper in six weeks?“ We at RSC New Homes offer a constant rate review for our customers.

“For instance, if someone buys a house today from Strata, we’d arrange a mortgage and provide them with a fixed rate of, say 5.7%/5.8%. Then, if that comes down before their house is built, we’ll put them on a cheaper deal.”

“So if the interest comes down to 5%, we'll switch them onto that interest rate to put against their mortgage payments, and we'll review every 30 days until the funds are drawn down and they're complete. That, again, gives people more confidence to exchange.”


Current mortgage rates are being compared to the credit crunch – what’s your take on this?

“We can get your customers 95% mortgages. This is nothing like the credit crunch. Not at all. We just need a bit of positivity. What we’re trying to get across is that those looking to buy are okay, it’s not all doom and gloom, they can come and buy a property if they’re financially ready to.”

Should I wait for mortgage rates to go down?

“Potential buyers shouldn’t wait around because nothing's going to change much at the minute. It’s worth considering that green mortgages are available to homes with A or B EPC rating.”

Green mortgages

What Andrew is saying is that lenders are now starting to consider the energy efficiency of the home and how much to lend the customer as a result. With every Strata having an A or B EPC rating, our homes are a real investment as it means you enjoy lower costs, making mortgage payments much more affordable overall.

He states, “The discount is typically around 0.1-0.2% and cashback is usually around £250, but it’s still a saving on the mortgage as well as the house being more energy efficient, helping with the cost of utility bills. So essentially, lenders will consider the energy saving and lend the customer more. This is a real positive, as it's the affordability that's better, plus the lower bills.” 

Now you have a new perspective on housing market mortgage rates and some real insights, you can begin looking at homes. If you enjoyed this article, read more helpful finance guides over on our blog, with pieces on the best credit score to buy a house with and more.