How will interest rates affect my mortgage?

Mortgage interest rates – or mortgage rates – are agreed with your lender and are what you’ll pay in interest when you borrow money to buy a home. The average rate is usually higher than the Bank of England’s base rate.

Most people with a mortgage will be affected by a change in interest rates in some way. What impact it has will depend on the type of mortgage you have, among a range of other factors.

If the base rate goes up or down, your mortgage payments could change, especially if you have a variable or tracker rate. Your payments might go down if the base rate is reduced and go up if the rate increases.

If you have a fixed-rate mortgage, your payments won't change until your fixed-rate period ends and you move to your lender's standard variable rate. 

It’s good to have a plan in place so that if rates go up, you know how to cover the increased cost. Find out more in our guide How to prepare for an interest rate change.

A Standard Variable Rate is set by the mortgage lender and usually follows the Bank of England’s base rate movements.

While rates may not change as much as tracker rate mortgages, lenders will likely pass on an interest rate rise or fall onto their customers. This means you could see a change to your monthly bill as soon as your next payment.

Your mortgage lender should send you a letter explaining the new rate and what you can expect to pay. If you have an SVR mortgage and you haven’t heard from your lender, contact them as soon as possible.

There are usually no penalties to leaving an SVR mortgage, so it could be cheaper to switch to a different deal if interest rates rise.

Tracker rate mortgages move in line with another rate – usually the Bank of England’s base rate, plus a few percent.

If the base rate goes up by 0.25%, your monthly cost will go up by the same amount.

Tracker rates usually last between two to five years before reverting to an SVR, so you could try to switch to a fixed rate if you’re at the end of your term and are worried about a change in interest rate. However, some tracker rates last for the life of your mortgage.

A fixed-rate mortgage doesn’t change when interest rates do; what you pay each month stays the same even if rates go up, which can help when the economy is in turmoil. It also means you might not feel the benefit from a fall in interest rates until your fixed term ends.

However, if you’re coming to the end of your fixed-rate term, you can speak to a mortgage adviser about remortgaging before the rates change.

If your current deal ends in the next 6 months, you can lock in a new rate now without any commitment. If the mortgage rate drops before your new deal starts, then you can cancel the one you booked and switch to a better offer.

If rates drop a lot, you may want to find a new deal. Always check if early repayment charges apply as this could cancel out the savings of switching to a better rate. 

But if looks like mortgage rates are rising, it’s worth remortgaging as soon as possible. If you don’t, your rate will automatically change to an SVR, which will rise (or drop) with interest rates.

Discounted rates are set slightly below SVR, but only for a certain time. Discounted rates increase when SVR rates and the Bank of England’s rate increase, so when this happens you will pay more each month.

Rising mortgage rates can be very stressful. If you’re worried, stressed or finding it difficult to cope, our guide on Money problems and mental wellbeing shows you where to get help.

The Bank of England sets the benchmark interest rate, called the 'base rate' or ‘Bank Rate’. While the base rate was low for over a decade, economic uncertainty over the last few years caused the Bank of England to increase the base rate as a way to try to control inflation.

When interest rates go down, borrowing gets cheaper. This encourages more spending and investment, which in turn supports the UK economy. 

It can make it easier to find good deals on loans and mortgages, where paying less interest will save you money over time. But lower rates also mean you’ll usually earn less interest on your savings.

The Bank of England’s Monetary Policy Committee (MPC) sets the base rate. They meet about every six weeks to decide if it goes up, down, or stays the same. 

While rates have already fallen in 2025, it’s impossible to know for certain what is going to happen. Try not to make large financial decisions now based on the hope rates go down further in the future.  

To check the date of the next announcement, visit Monetary Policy Committee dates for 2025 and 2026Opens in a new window  

Most people with a mortgage could benefit if interest rates drop. 

If you have a variable or tracker mortgage, your monthly payment could go down with the base rate, sometimes even from your next repayment.

Or if you're within six months of the end of a fixed-rate mortgage, you could get a lower rate - and smaller monthly repayments - by prebooking a new deal without commitment. So, if the mortgage rate drops again before the new deal starts, you can cancel and switch to a better offer. 

When interest rates drop, mortgage deals usually get more competitive. This means you could get a new mortgage with lower repayments or better terms.

If you’re on a fixed-term mortgage, you’ll usually need to wait until the last six months to look for a new deal with your current lender. This is called a product transfer. You may be able to switch earlier, but you could face early repayment charges, so always speak to a mortgage adviser before deciding.

You can also shop around for a new lender. Start six months before your current deal ends, but to avoid extra charges you should wait until your current deal finishes before switching lenders.

If interest rates drop after you agree your mortgage, don’t worry. You may still be able to switch if your lender is signed up to the Mortgage Charter.

The Mortgage Charter is a set of rules agreed by most UK mortgage lenders, giving you more flexibility and protection when your fixed-rate mortgage is ending.

If your lender is offering a better, similar rate after you’ve locked-in your deal, you can ask to change, providing your new mortgage hasn’t started yet and your repayments are up to date.

While falling interest rates can be good news for mortgage holders, it’s not the same for savers. 

A lower interest rate can mean your savings earn less, particularly if your account follows the base rate. It’s important to check what type of account you have and what rate your savings currently pay.

Banks don’t always increase or decrease your savings rate automatically when the interest rate changes. But if it looks like you’re no longer getting the best deal, shop around to see if switching could make you more money. 

If increased interest rates have made your mortgage payments unaffordable, it’s important to seek help as soon as possible.

Find out what you can do with our guide on Help with mortgage payments.