How to prepare for mortgage rates going up

Published  15 May 2024
   5 min read

If you’re worried about rising mortgage rates, you can’t pay your mortgage or you’re looking for a new deal, how can you prepare and what help is available?

Why are mortgage rates going up?

The Bank of England sets the base interest rate, which affects the interest rates that banks charge borrowers and pay savers. The Bank is also responsible for keeping inflation (price and cost rises) low, but in December 2021, it started increasing interest rates because inflation was rising. The interest rate rises that followed meant that mortgage rates for millions of people also increased.


What happens when mortgage rates go up?

When interest rates rise, whether your mortgage rate also rises depends on the type of mortgage you have. There are several different types of mortgage deal, but the main ones are:

  1. Fixed-rate mortgage. This type of mortgage charges a fixed rate of interest throughout the period of the deal (typically two, three or five years).  The interest rate and your monthly payments will not change during the fixed period. Most mortgage borrowers have a fixed-rate mortgage.

  2. Standard variable rate (SVR). This type of mortgage generally rises and falls when the Bank of England changes the base rate, but not necessarily by the same amount or at the same time. The standard variable rate is the one you will be on after you have come to the end of a deal, if you’ve not taken out a new one.  

  3. Tracker rate mortgage. This type of mortgage tracks the Bank of England base rate, so when the base rate rises and falls, the tracker mortgage rate will change by the same amount.

  4. Discount rate mortgage. Here the interest rate is a fixed percentage, for example, 0.5% or 1%, below the standard variable rate. When the Bank of England raises or reduces the base rate, your discount mortgage is also likely to rise or fall, but not necessarily by the same amount.


Tips for managing a mortgage interest rate rise

If you are on a variable rate, your mortgage interest rate may have been rising as the Bank of England increased rates in 2022 and 2023. That means you may be paying a lot more than you were previously. Or your fixed rate deal might have come to an end and the increase in your mortgage interest rate could be very steep. Some borrowers took out fixed rate mortgages  charging interest below two per cent, and face sharply higher payments when they come to get a new deal.

Whatever your situation, there are several steps to consider:

  • Getting a new mortgage deal. One of the big decisions is whether to opt for a fixed rate mortgage deal or to take out a variable rate mortgage (such as a tracker or discount rate). There are pros and cons to taking out a fixed rate mortgage compared to a variable rate one. Fixed rate mortgages may be worth considering if you want certainty about how much your monthly mortgage payments will be. However, they may be less flexible especially if, for example, you’re considering moving within the fixed rate term. Variable rate mortgages (including tracker and standard variable rates) are more flexible, but don’t offer you certainty about how much your monthly mortgage payments will be.


Should you choose a fixed or variable rate mortgage?

Choosing between a fixed or variable rate mortgage may not be straightforward. None of us knows what will happen to mortgage rates in the future, particularly for fixed rate deals. That’s because these deals are not just influenced by changes to the Bank of England base interest rate; other factors, such as how competitive the mortgage market is, can also come into play. 

It can be helpful to think about how your finances would be affected if, for example, you were to choose a variable rate mortgage (such as a tracker mortgage) and interest rates were to rise in the future. Would you still be able to able to afford your mortgage payments? On the other hand, if you were to choose a fixed-rate mortgage, how long should you fix for? Should you opt for a shorter-term deal (such as two years, for example) or a longer-term one (such as five years or longer)?

The mortgage deal you take could have a significant impact on your finances, which is why it is a good idea to talk to an impartial mortgage adviser who can explain the options to you.

Here are some steps to consider when deciding which type of deal to go for:

  • Look at your budget. If your monthly mortgage costs have risen or are due to rise, it’s worth looking at your budget, or drawing one up, if you don’t already have one. A budget is a list of money you have coming in and money you spend, with your spending split into categories. These could include essential bills, travel costs, food, debt repayments and non-essential spending, such as clothes and eating out. Having a budget can make it easier to see where you can make cutbacks. You can read more in our money guide on budgeting.
  • Can you increase your income? You may be able to increase your income by, for example, doing overtime or an additional job. However, this may not be possible, especially if you have caring responsibilities or other commitments. If you have a spare room, you may want to consider renting it out. It’s a big step, so needs some serious thought, and you would have to get permission from your mortgage lender and tell your home insurer as well (and landlord, if you live in a leasehold property). You can earn up to £7,500 a year tax-free from renting out your room. You can find out more about the so-called ‘Rent a room’ (opens in a new window) scheme on the website.

What happens if you can’t pay your mortgage?

Contact your mortgage lender if you’re worried about missing a mortgage payment, or if you’ve missed one or more monthly mortgage payments. If you have a mortgage adviser, talk to them before making any decisions about your mortgage. There’s information on what your mortgage lender may be able to do if you can’t pay your mortgage, in our guide Where to get help with the cost of living