What Determines UK Mortgage Rates?
Written by: Marcus M. Araz, MBA, PhD · Updated:
Three things set a UK mortgage rate: the Bank of England base rate and market swap rates, the type and term of the loan, and your own profile. On 16 September 2026 the Bank of England held Bank Rate at 3.75%. Fixed-rate mortgages are priced mainly on lenders’ two and five year funding costs, that is swap rates, while tracker mortgages follow Bank Rate directly. Rates offered to foreign buyers living abroad are usually higher than for UK residents, and there are fewer products. This page does not recommend any product or rate; it explains the factors that affect the rate and the conditions for applying.
Types of mortgage
| Type | How it works | Who it suits |
|---|---|---|
| Fixed rate (usually 2 or 5 years) | The rate does not change during the fixed period; afterwards it moves to the lender’s standard variable rate unless you switch to a new product | Investors who want to know their payment in advance and plan around rental income |
| Tracker | The rate tracks Bank Rate plus a set margin; when Bank Rate changes, so does the payment | Buyers who want to benefit from rate cuts and can absorb fluctuations |
| Standard variable rate (SVR) | A rate set by the lender itself; you move onto it automatically when a fixed period ends | Rarely anyone’s first choice; switching to a new product at the end of the fixed period is usually cheaper |
| Interest only | Only interest is paid monthly; the capital is repaid in one sum at the end of the term | Common on buy to let; for investors who prioritise cash flow |
What determines the rate on your side
- Deposit (loan to value): the larger the deposit, the lower the risk and the better the rate. Buy to let mortgages need at least a 25% deposit; for buyers living abroad this can rise to 40%.
- Residence and income: most of the market is open to buyers who live in the UK with sterling income. Fewer lenders offer products for buyers living abroad with income in another currency; most look for a minimum income starting around £50,000 a year.
- The property itself: some lenders are more cautious with new builds, high-rise towers or studio flats; the property type affects both the rate and whether a loan is offered at all.
- Fees: besides the rate, arrangement, valuation and legal fees determine the total cost. A high fee on a low-rate product can wipe out its advantage over two years.
The rental test on buy to let mortgages
On a buy to let mortgage the lender looks first at the property’s rent. Prudential Regulation Authority (PRA) rules require lenders to test whether the rent covers the interest at a “stressed” rate: for fixed periods under five years the test rate must be at least 5.5% and allow for rates rising by at least 2 points; a lower test rate may be used on fixes of five years or more. Most lenders require the rent to cover 125% of the interest at the test rate (for limited companies and basic-rate taxpayers) or 145% (for higher-rate taxpayers).
An example showing how the test works (not a product offer): a £300,000 flat, 25% deposit, £225,000 loan.
| 125% test | 145% test | |
|---|---|---|
| Annual interest at the 5.5% test rate | £12,375 | £12,375 |
| Annual amount the rent must cover | £15,469 | £17,944 |
| Minimum monthly rent required | £1,289 | £1,495 |
If the rent falls short, the loan is reduced and a larger deposit is needed. That is why a property with strong rent supports a bigger loan than one at the same price with weaker rent. Rent levels by city are on our UK cities with the highest rental yields page.
Points to watch for buyers living abroad
- Currency risk: the loan is in sterling; if your income is in Turkish lira or another currency, the burden of your payments moves with the exchange rate.
- End of the fixed period: if you do not switch when the fixed period ends, you move onto the standard variable rate; start looking for a new product a few months before the end date.
- Early repayment charges: repaying or moving the loan during the fixed period usually incurs a charge; match your sale plans to the length of the fixed period.
- Interest-free option: if you do not want an interest-bearing loan, Islamic finance products are available; more on our Islamic mortgages in the UK page.
Frequently asked questions
What determines mortgage rates in the UK? Fixed-rate mortgages depend largely on swap rates and variable ones on the Bank of England base rate. On top of that come the deposit, residence, income and property type.
What is the Bank of England base rate now? On 16 September 2026 the Bank of England held Bank Rate at 3.75%.
Are mortgage rates higher for foreigners? Usually, yes. Fewer lenders offer products to buyers living abroad with income in another currency, and rates are higher than for UK residents.
Should I choose fixed or variable? Fixed if you want to know the payment in advance and plan around the rent; variable if you want to benefit from rate cuts and can absorb fluctuations. Decide together with the fixed-period length and your sale plans.
What is the rental test on a buy to let mortgage? The lender requires the rent to cover usually 125% or 145% of the interest calculated at a stressed rate. If the rent is not enough, the loan amount falls.
What rate would I get if I apply through you? Rates vary by person and lender, and this page does not offer a specific product. With your residence, income, deposit and property details we identify suitable lenders; the final decision rests with the lender.
Related pages
Can a Turkish citizen get a mortgage in the UK, The cost of buying a home in the UK and finance solutions.
Sources
Bank Rate is from the Bank of England . The buy to let rental test rules are based on the PRA’s supervisory statement SS13/16 ; lenders may apply their own criteria above these minimums. The figures in the example only illustrate how the test works and are not a loan offer.
Legal notice
capital.works® (YATIRIM UK LIMITED) is a credit broker authorised and regulated by the Financial Conduct Authority, not a lender. You can check our entry on the FCA Register (FRN 1049015). This page is for general information and is not personal financial advice; terms vary by lender and applicant and change over time. Acceptance of your application depends on the lender’s own criteria. Most buy to let mortgages are not regulated by the FCA. Your home may be repossessed if you do not keep up repayments on your mortgage.
The next step
Tell us where you live, your income, your deposit and the property you are looking at, and together we will work out which lenders are open to you and how the rental test comes out for your property: Contact us.