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Updated: 23 Jun 2022

Cheapest mortgage deals revealed as rates continue to rise

Borrowers with big deposits face higher costs after base rate hikes

Mortgage rates are soaring, as the Bank of England grapples with the threat posed by rising inflation.

The cheapest rates for borrowers with big deposits have risen to around 2.5%, after a fifth hike to the Bank of England base rate.

Here, Which? takes a look at the cheapest deals on the market and offers advice on what you'll need to think about before settling on a mortgage.

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Base rate rises for a fifth time

Last week, the Bank of England increased the base rate for the fifth time since December. It now stands at 1.25%, having risen by 0.25 percentage points.

The rises come as the Bank battles soaring inflation, which hit 9.1% in May, well above the target of 2%.

The base rate dictates the cost of borrowing for banks and building societies, so a higher rate usually means more expensive borrowing for consumers.

Five quick-fire increases have resulted in mortgage rates near tripling from the historic low of 0.79% recorded last October, when more than 100 sub-1% fixed-rate mortgages were available.

How do rates compare for borrowers with big and small deposits?

The very cheapest two-year fixed-rate deals are now priced at nearly 2.5%, as rates continue to rise steadily.

A handful of cheaper deals are still available, but they come with restrictions - for example, only being available in Northern Ireland or being limited to existing customers.

The chart below shows the lowest two-year and five-year fixed rates currently available throughout the country. If you're looking for a low-deposit mortgage, check out our full story for the latest 90% and 95% mortgage rates.

Best rates at 60% loan-to-value

The cheapest deals for homebuyers and people remortgaging tend to be available at up to 60% loan-to-value (LTV).

If you're borrowing at 60% LTV, you should be able to get a two or five-year fixed-rate deal with an initial rate between 2.5-2.8%.

The tables below show the best rates currently available for people buying and remortgaging respectively, using figures from Moneyfacts. 


Cheapest rates for homebuyers at 60% LTV

Two-year fix

Lender
Initial rate
Revert rate
Upfront fee
Cambridge Building Society
2.49%5.29%None
First Direct2.54%4.04%£490
Metro Bank2.59%4.50%0.5% of mortgage advance


Best rate with no upfront fee: 2.69% from Cambridge Building Society.

Five-year fix

LenderInitial rateRevert rateUpfront fee
First Direct2.54%4.04%£490
Halifax 2.66%4.49%£1,499
Barclays2.72%4.49%£1,999


Best rate with no upfront fee: 2.89% from First Direct.


Cheapest rates for remortgaging at 60% LTV

Two-year fix

LenderInitial rateRevert rate
Upfront fee
Cambridge Building Society2.49%5.29%None
First Direct2.54%4.04%£490
Metro Bank2.59%4.50%0.5% of mortgage advance


Best rate with no upfront fee: 2.69% from Cambridge Building Society.

Five-year fix

Lender
Initial rateRevert rate
Upfront fee
First Direct2.64%
4.04%
£490
Lloyds Bank2.69%
4.49%
£1,499
Halifax2.71%
4.49%
£1,499


Best rate with no upfront fee: 2.89% from First Direct.


Does a lower rate mean a cheaper deal?

The cheapest rates are bound to be tempting, but you'll need to take the full cost of the mortgage into account before rushing in.

That's because lenders are now charging upfront fees as high as £1,999 on their table-topping deals. Higher fees allow lenders to offer lower rates and recoup their losses elsewhere.

Some banks have also taken to charging fees as a percentage of the loan amount. For example, if you're borrowing a larger amount such as £500,000 and the fee is 0.5% of the advance, you'll need to pay £2,500, which will add a significant amount on to the overall cost of the loan.

Above, we've listed the best rates available with no upfront fees. As you can see, you might need to pay a premium of around 0.2-0.5% for a fee-free deal, but in some cases a 'more expensive' mortgage might actually be cheaper over the fixed term.

If you're unsure about which type of deal to go for, a mortgage adviser will be able to analyse deals based on their true cost, taking into account rates, fees and incentives.

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Will mortgage rates continue to rise?

The cost of fixed-rate mortgages has been rising since the first base rate hike in December.

The good news for borrowers is that rates fell so far in 2021 that they've been increasing from a very low base, so there are still some good deals available, regardless of the size of your deposit.

Variable-rate deals, such as trackers and discount mortgages, are immediately affected by base rate changes, so borrowers with these mortgages may be best moving to a fixed-term deal when they come to remortgage.

It's possible (but by no means certain) that the Bank of England will decide to increase the base rate again in August, so if you're thinking of locking in a new mortgage, sooner might be better than later.

How long should you fix your mortgage rate for?

One of the biggest questions when it comes to mortgages is how long to lock in your rate for.

Borrowers most commonly fix for either two or five years. Five-year deals were once significantly more expensive, but the gap has closed in recent years. With this in mind, many borrowers have chosen to fix for longer to protect themselves from rate increases.

This is a good idea in theory, but it's not the right move for everyone.

Five-year fixes usually come with high early repayment charges, meaning that you could be charged thousands of pounds if you decide to pay the mortgage back early (for example, if you move home and don't transfer it to the new property).

With this in mind, it's important to think of your own medium and long-term plans before settling on a mortgage term.


This story was originally published on 6 September 2021. It is regularly updated with the latest mortgage rates. The last update was on 23 June 2022.