Why are mortgage rates rising?

The six causes of mortgage rates rising

1. Inflation that will not fall

When inflation runs above the 2% target for longer than expected, markets expect the Bank of England to keep Bank Rate higher for longer. Swap rates rise to match, and fixed mortgage rates follow.

2. Expectations for Bank Rate

Fixed rates price in the whole expected path of Bank Rate, not just today’s level. A cautious speech, a close vote or a strong jobs report can push expectations up and fixed rates with them, without any change to Bank Rate itself.

3. Government borrowing costs

Gilt yields, what the government pays to borrow, move closely with swap rates. Concerns about public finances can push gilt yields up quickly, and lenders feel it within days.

4. Rates around the world

UK markets do not move alone. A jump in US or European borrowing costs often lifts UK swap rates too, even when nothing has changed at home.

5. Lender funding and competition

Lenders also adjust for their own costs and appetite. When demand is high or service levels are stretched, some raise rates to slow applications. When competition is fierce, margins shrink and rises are passed on more slowly.

6. Risk

If lenders expect more customers to struggle or house prices to fall, they can widen their margins, particularly at higher loan to value. That is why rates at 90% and 95% can rise faster than at 60%.

How fast lenders pass rises on

When swap rates jump, mortgage rates rising across the market usually follows quickly. The first lenders reprice within days, and others follow over the next week or two. Some give only a few hours’ notice before withdrawing a deal. That is why Theo tracks “lender catch up”: if swap rates have risen and lenders have not yet followed, more rises may still be to come.

Two recent examples

In autumn 2022, the government’s mini-budget triggered a sharp sell-off in gilts. Swap rates jumped within days, and lenders withdrew hundreds of mortgage deals while they repriced.

In summer 2023, inflation came in higher than expected. Markets priced in more Bank Rate rises, and average two year fixed rates climbed above 6%. In both cases swap rates moved first and lenders followed.

What stops mortgage rates rising

Rises usually stall when swap rates stop climbing: when inflation starts to fall, when the Bank of England signals that rates have peaked, or when a shock fades. Competition then does the rest, as lenders cut to win back business. Theo’s rate pressure reading shows when the signals start to turn.

What mortgage rates rising means for you

If you are on a fixed rate, nothing changes until your deal ends. If your fix ends within the next six months, many lenders let you secure a new rate now, which can protect you from further rises. If you are on a tracker or variable rate, your payment may rise after the next Bank Rate change. Theo’s rate rise stress test shows what your payment would be at higher rates, and an FCA-authorised mortgage adviser can tell you what fits your circumstances.