If you’re looking to buy a house, then you’ll want to know all about mortgage interest rates. 

Mortgage interest rates are the cost of borrowing money over a certain period of time. You’ll pay them every month for the duration of your mortgage term, and the rate that you’ll pay depends on what type of mortgage you take out, how much you borrow and when you take out the loan.

Mortgage rates are important because they can have a big impact on how much your monthly payments will be. The higher the interest rate, which is always calculated as a percentage of your mortgage’s balance, the more you’ll pay in interest over the course of your loan.

In this blog we’ll take a look at:

  • The different types of mortgages you can choose from
  • Which mortgages have the lowest interest rates
  • How you can get the best mortgage interest rate
  • How mortgage interest rates are set
  • Mortgage fees and charges 

What are the different types of mortgages? 

Mortgage rates are a big part of the cost of buying a home, but they aren’t the only factor. The type of mortgage you get will affect your monthly payment, so it’s important to know what kind of mortgages are available and what they mean for you.

Fixed-rate mortgages

With a fixed-rate mortgage, you’ll have one fixed rate throughout the entire term. This means that if interest rates go up or down, the rate on your mortgage won’t change. The advantage is that you’ll know exactly how much you’re going to pay each month for the life of your loan—and that’s not always easy with adjustable rate mortgages.

Variable rate mortgages 

A variable rate mortgage allows you to take advantage of lower interest rates when they’re available, but it also means that if market conditions change and interest rates go up (or down), so will your monthly payments. That’s why variable rate mortgages are sometimes referred to as “risky” mortgages—because if you select this option and rates go up while you’re still paying off your loan, it could put your financial situation at risk.

Most tracker mortgages follow the Bank of England base rate (which is currently 5%). Your rate might be described as the ‘base rate +1%’, which means that your interest rate would be 6%, but if the base rate changes, your interest rate will too. 

Tracker deals might be as short as two years or run for the entire term of the mortgage.

Discount mortgage deals follow the lender’s standard variable rate (SVR), which the lender sets and can change at any time, minus a set percent. So, if the lender’s SVR was 6% and your discount was 4%, you’d pay 2%.

SVRs are typically quite high, and with most mortgage deals your interest rate will revert to your lender’s SVR after the initial period comes to an end, so it often makes sense to switch or remortgage before you’re moved onto the SVR.

Which mortgages have the lowest interest rate?

With fixed-rate mortgages, you’re paying a bit extra for the security of knowing how much your repayments will be each month, therefore usually interest rates on these are higher than variable rates. 

Likewise, a longer-term fixed rate, such as five years or more, will usually be higher than a shorter one. This is because the mortgage lender is taking on a bigger risk by offering these deals, as rates in the market could rise during this time.

You can compare mortgage interest rates online on a number of different platforms.

How can you get the best mortgage rate?

Depending on your personal circumstances, there’s a few different options available and in most situations you’ll have to meet certain criteria to qualify for the best rates. 

Some tips on how to increase your chances of getting  great deal include: 

  • A strong credit score – when you apply for a mortgage, lenders will want to know how good you are at repaying debt for their own security, and they’re usually very thorough in checking your credit history. There are ways to improve your credit score if this is a concern. 

  • Do your research – there’s a huge amount of mortgage lenders so make sure to shop around to get the best deal rather than go for the first one that you come into contact with. From big well known brands to smaller independent lenders, it’s important to get the right deal that suits you.


  • Use an independent mortgage broker –  not only do brokers know the best deals on the market, but they can advise which lenders are likely to accept you, and be able to get you the best deal. 


  • Build a bigger deposit – the bigger your deposit, the smaller the amount of money you will need to borrow, i.e. a lower loan to value ratio, and the better the rate you’ll be able to get. If you already own a property, increasing your equity by paying down your mortgage each month is another option to consider.


How are mortgage interest rates set? 

Many factors go into how a lender sets the interest rates on its mortgage range including: 

  1. Cost of funds 

Different lenders fund their loans in various ways, and this can have an effect on how low their rates are, as the cheaper things are for the lender, the lower their rates can be. Some lenders get their funding through wholesale markets, others may raise deposits from saves, or some of them will do a mixture. 

The Bank of England base rate does play a part, however there’s not a clear link between the base rate and what lenders have to pay to get their funding.

  • Competition in the market

The level of competition in the market, plus a lender’s own business targets, will also be a factor in the pricing of their interest rates. Lenders will look at how their competitors are pricing their loans and may use that to work out what interest they feel comfortable with. 

  • Loan-to-value ratio

As previously mentioned, the bigger your deposit, the lower interest rate you’ll be able to get. If you’re buying somewhere with a 30% deposit, you’ll qualify for better rates than with a 10% deposit as there’s less risk for the lender involved. 

Find out more: LTV calculator

  • Your credit history 

As we’ve already discussed, lenders will take a good look at your credit history before making a decision on what they’re happy to loan you. If you’ve missed a couple of payments before, whether this be for a mobile phone bill or a sofa you purchased on credit, you’ll have black marks left on your credit report which will have a significant effect on what mortgage you may qualify for. 

Some lenders won’t consider borrowers who have black marks on their credit history, whilst others will charge a higher interest rate due to the increased potential risk of lending to you.

Mortgage fees and charges

In addition to the interest that you’ll be required to pay on the loan, most lenders charge a fee which can be paid up-front or added to your mortgage balance. Some lenders may also offer fee-free deals, however these will usually have a higher interest rate so it’s important to shop around and use a mortgage repayment calculator.

We hope this blog has given you a good understanding of all things mortgage rates, but if you’re buying or selling a home and would like more information or advice, get in touch with one of our friendly team members – Contact Us – YouConvey – The UK’s first collaborative conveyancing service (you-convey.co.uk)