RISING interest rates usually lead to a spike in mortgage rates for households.
The Bank of England (BoE) hiked its base rate from 4.5% to 5% in June – the 13th time in a row since December 2021.
The central bank has been increasing the rate to slow runaway inflation, which stood at 7.9% in June.
But any rises are usually passed on to mortgage holders meaning you're left forking out more on your monthly repayments.
Here's everything you need to know about how interest rates impact your mortgage payments and what a mortgage repayment calculator is.
Why are mortgage rates going up?
The BoE has been hiking its base rate consistently since December 2021 in a bid to slow inflation and discourage consumers from spending money.
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Inflation is a measure of how much any number of goods and services are rising in price.
The BoE's inflationary target is 2% and it stood at 7.9% in June, so it means prices are rising much more than the bank wants.
Increases in the base rate are reflected in mortgage rates.
The bank takes the step in the hopes households have less to spend on everyday essentials.
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This is then supposed to drive down inflation, or at least that is the desired effect.
How much will my mortgage go up?
There are three different types of mortgages – tracker, standard variable rate (SVR) and fixed-term.
Tracker mortgages are closely linked to the BoE base rate, and go up or down depending on what happens to it.
For example, if the BoE's base rate was 4%, a tracker mortgage might go up to 5%.
A standard variable rate mortgage goes up or down depending on what the lender decides.
However, SVR's tend to rise when the BoE base rate does, although not by a set amount.
Meanwhile, under a fixed-term mortgage, your lender sets a rate which then stays the same for the length of the agreed term.
While fixed-term mortgages can be useful if you want to know how much to budget each month, you can end up paying more if you lock in at a higher rate and the BoE base rate falls.
That said, if you lock in a low rate, it can cushion you from BoE base rate rises.
There are a number of websites with calculators that can help you work out how much your monthly mortgage repayments might go up by depending on changes in interest rates.
L&C Mortgages' calculator lets you work out what your payments will increase to based on your loan amount, mortgage type, term length, current rate and what it will change to.
For example, if you've got a £125,000 loan on a 25-year term at a current rate of 5% and this rate rises to 5.25%, your payments would go up from £731 a month to £749 a month.
Meanwhile, if the conditions are the same except your loan amount is £250,000, monthly payments would go up from £1,461 to £1,498.
Moneysavingexpert.com also has a useful calculator which you can use to track how payments can change.
A number of banks and building societies have their own interest rate calculators which you can find on their websites.
Here's a list of a few that do:
- Nationwide
- Barclays
- NatWest
- Bradford and Bingley
There are a number of ways you can boost your chances of getting the best mortgage deal though.
Will mortgage rates go down in 2023?
It's hard to say at this point whether mortgage rates will go down in 2023 – no one can predict with any certainty if or when they will change.
There are lots of factors that impact how lenders decide what rate to charge.
Broadly these include the UK's inflation rate, how much the UK economy is growing and market confidence.
If the economy keeps growing and avoids recession, market confidence should stabilise.
David Hollingworth, associate director at L&C Mortgages, previously told The Sun it was looking likely borrowers will be facing more interest rate rises from the BoE.
Before we can contemplate interest rates falling back, mortgage rates will likely climb higher, David explained.
But, he added: "Shorter term fixed rate pricing remains higher than for longer term deals.
"This signals that there is still an expectation for interest rates to ease back in the longer run."
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However, when it comes to mortgage rates falling in 2023, David wasn't so optimistic.
He said: "Until it looks like the Bank of England is taming stubborn inflation it could be premature to pin hopes on lower rates before next year."
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