With inflationary pressure continuing to build, the Bank of England (B of E) raised the base rate yet again this month by 0.25% to 0.5%. Unused to rises, especially back-to-back ones, it may come as a shock to many borrowers but what effect will it have on the housing market?


Firstly, it should be remembered that the rises have come during a period of historic lows. The base rate has only now risen to the same level it was at when the B of E slashed it to 0.5% in response to the 2008 financial crash. Nor will it affect the majority of borrowers, at least in the short term – roughly a third of homeowners don’t have a mortgage, a third are on fixed rates and only the remaining third are on lenders’ variable rates. And, for those on variable rates, the difference in the average mortgage payment will be just £300/year or £25/month, which is not a significant amount of money.


Secondly, mortgage rates tend to follow swap rates (the rates at which banks borrow money) rather than the base rate. They are also affected by varying levels of competition within the different lending sectors. So, although most lenders have added the rise to their variable rates, they have not yet added the full 0.25% to the cost of their fixed rate products. Rates had already been creeping up since October last year, but only very slightly and there are still plenty of mortgages available sub 1.5% for those who have a decent deposit.


Moving forwards, the base rate is likely to rise several more times during the course of 2022, reaching between 1.25% and 1.5%. It means the average mortgage rate is therefore expected to go up from its low point of 1.5% in November 2021 to 2% by December 2022. To put that into some sort of historical perspective, the average 5-year fixed rate mortgage was as high as 6.19% before the 2008 crash and only dipped below 2.5% towards the end of 2016, after which it hovered around 2% until the start of 2021. Within that context, 2% is therefore still an exceptionally low rate. And, for anyone coming off a 5-year deal, a 2% mortgage would represent a reduction rather than an increase, as the average rate five years ago was 2.34%. For those on a 3-year deal, there will be a rise, but only a very modest one, with the average rate around 1.81% when they fixed theirs.

If you want to see how the housing market has reacted, you only need to look at how house prices are continuing to rise, up 0.8% last month and by 11.2% annually (source: Nationwide), to see our confidence remains as high as ever.


Below is a selection of this month’s best buys from Moneyfacts.co.uk, which will give you an idea of the kinds of mortgage rates currently on offer:




Two-year fixed rates: 1.39% from First Direct. Product fee £490. 60% LTV.
1.40% from Barclays. Product fee £995. 60% LTV.

Three-year fixed rates: 1.45% from Barclays. Product fee £999. 60% LTV.
1.54% from Barclays. Product fee £999. 75% LTV.

Five-year fixed rates: 1.54% from first direct. Product fee £490. 60% LTV.
1.61% from HSBC. Product fee £1,499. 60% LTV.

Discounted variable: 0.89% For 2 years. From Progressive BS. Product fee £0. 60% LTV.
1.00% For 2 years. From Stafford Railway BS. Product fee £1,000. 75% LTV.




Best two-year fixed rate: 0.99% from The Mortgage Works. Arrangement 2.00% Advance. 65% LTV.

Five-year fixed rate: 1.49% from The Mortgage Works. Arrangement 2.00% Advance. 65% LTV

Best Discounted variable: 1.34% for 2 years. from Accord Mortgages. Completion £995. 60% LTV.