UK Mortgages : Are interest rates on the rise?

Borrowers should start to prepare for an increase in interest rates across the board.

Mortgage rates for first-time buyers and buyers with smaller deposits have fallen, despite rates across the market increasing month-on-month.

Between October and November, the average rate for two-year fixed deals across the entire market have risen from 2.25% to 2.29%, according to data from During this period, the average five-year fixed rates have also increased from 2.55% to 2.59%.

The increases to average rates in the market could be largely due to lenders rising rates for the most competitive deals out there. These typically require a deposit of 35% or more. But interestingly, interest rate hikes aren’t happening in every part of the mortgage sector.

First-time buyers and borrowers with smaller deposits

First-time buyers and buyers with a 10% deposit or less are not only finding the market much more competitive, especially when compared to a year ago, but also are currently seeing interest rates drop.

From October to November, the average rate on a two-year fixed mortgage deal with a 10% deposit fell from 2.56% to 2.54%. And the average rate on five-year deals with that level of deposit also fell from 3.05% to 3.02%. Additionally, mortgages with a 5% deposit fell by more significant margins from 3.32% to 3.22% for two-year fixed rate deals and from 3.63% to 3.51% for five-year deals.

There have also been substantial rate drops for this part of the market when looking at the data year-on-year. The average rate for a two-year fixed deal with a 10% deposit has decreased by 1.22%. It fell from 3.76% in November 2020 to 2.54% this month. Five-year fixed deals with the same amount of deposit also fell from 3.98% to 3.02% during that same period.

What’s expected moving forward?

Across the board, interest rates are unlikely to fall lower than current levels. Mortgage rates for first-time buyers may increase in the coming months, particularly at the more competitive end of the market. This could result in rates for deals requiring a 10% deposit or less to go up.

Additionally, lenders could start becoming more risk averse, especially if the Bank of England increases the base interest rate soon. This is expected to happen at least by spring 2022, according to The base rate has been held at 0.1% since March 2020.

With the recent news that inflation rose by 4.2% in October alone, which is the highest rate increase in nearly a decade, the Bank of England could be looking to raise the rate sooner. The Bank of England’s Monetary Policy Committee meets roughly every six weeks to decide what the base rate should be. The next meeting is on Thursday 16 December.

No matter what the committee ends up deciding, record low mortgage rates are likely coming to an end soon. Borrowers who haven’t locked in a fixed rate mortgage yet may want to consider locking in one soon and seeking professional advice from a mortgage broker to help you find the best mortgage deal for your financial and personal circumstances.

Eleanor Williams, finance expert at, comments: “As the market remains unsettled, borrowers may consider this an opportune time to explore securing a new deal, as there is no guarantee that rates will not continue to increase in the months to come.

“Seeking out independent financial advice to assess the changing market is vital to ensure the best possible deal can be secured considering the rate, associated fees and incentives.”

Kaylene Isherwood

Kaylene Isherwood
Freelance Property Writer