Domesday Live

Why are mortgage rates so high?

Mortgage rates follow the Bank of England's interest rate and what lenders pay to borrow. The Bank raised its rate sharply from late 2021 to fight inflation, and lenders pass that on. Rates for new deals are far above the 1% or so people paid before 2022, though still below the highs of the 1990s.

Why it happens

• The Bank raised its rate. To bring inflation down, the Bank of England raised Bank Rate from 0.1% to 5.25% between late 2021 and 2023. It has been cutting slowly since.
• Lenders look at the market, not just the Bank. Fixed-rate mortgages are priced from what markets expect rates to be over the next two to five years, which is closely linked to government borrowing costs.
• Government borrowing costs rose. The rate on 10-year government bonds has risen, which makes money dearer for lenders, and for the government itself.
• Cheap fixed deals are ending. Many people who fixed at under 2% are now remortgaging at much higher rates, so their payments are rising even though rates are no longer climbing.