It’s been a long and challenging couple of years for mortgage customers, but a reduction in the base rate and falling fixed mortgage rates mean at last there may be some light at the end of the tunnel.
Those looking to remortgage or buy can now lock into a five year fixed rate mortgage deal below 4%, according to Moneyfactscompare.co.uk, the first time since April 2024 that rates have been this low.
Nationwide Building Society, for example, is offering a five-year fixed deal for homemovers at a rate of 3.99%, with a 60% loan-to-value (LTV) and a product fee of £1,499 (on a minimum loan of £300,000).
This is encouraging news for anyone who has been waiting to take out a mortgage or remortgage, but has been put off by sky-high rates. However, bear in mind that you’ll usually need some considerable equity or a sizable deposit to qualify for the best deals.
The average two-year fixed rate now sits at 5.76%, while the average five-year rate is 5.37%. On 22 July, average rates were much higher, with a two-year mortgage at 5.88% and a five-year deal at 5.47%.
“Fixed mortgage rates are on the downward trend, which will be a relief to borrowers looking to refinance,” commented Rachel Springall, finance expert at Moneyfactscompare.co.uk.
“Since the start of 2024, mortgage rates have been volatile, and in the past few weeks lenders have been reacting to changing swap rates. Mortgage rates could fall further, but it is difficult to tell how quickly and by what margins,” she continued.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
What’s happening to UK mortgage rates?
Whilst current falling rates are positive for mortgage borrowers in isolation, the figures across the past few years tell a more complicated story. Early 2023 was a particularly uncertain time for homeowners in the wake of September 2022’s disastrous mini Budget. Some lenders introduced rates higher even than their standard variable rates (SVRs), which is usually the most expensive rate on the market.
Rates gradually declined in the following months as the government took steps to tackle inflation, but then suddenly ramped up in July 2023 and reached an even higher peak in August. One major contributing factor was that the Bank of England base rate was unexpectedly forecast to reach 5.75% by the end of the year, when experts had previously not expected it to breach 5%. The base rate was then held at 5.25% for fourteen consecutive months, before finally being reduced to 5% in August 2024.
It’s important to remember, however, that rather than being pegged to the base rate, fixed mortgage rates are predominantly determined by what is happening to ‘swap’ rates. These are fixed rates that institutions charge each other to borrow money.
Swap rates are affected by various factors, including long-term market projections for the Bank of England base rate, as well as the broader economic outlook. Swap rates have declined month on month which has led to mortgage lenders cutting rates. You can learn more about swap rates and their impact on fixed rate mortgages in our guide What are swap rates and how do they affect my mortgage?
The chart below shows the dramatic path average fixed mortgage rates took between July 2022 to December 2023, and illustrates just how impactful September 2022’s mini-budget and the interest rate forecasts from this summer were.
Figures courtesy of Moneyfactscompare.co.uk
The average Standard Variable Rate (SVR) – the interest rate your lender puts you on once your introductory deal ends – remains over 8%, having peaked at 8.19% over the past few months. This means the difficult choice that has faced homeowners on their lender’s SVR for the last few months remains the same: ride out these hefty repayments in the hope that fixed-rate deals will continue to trickle down, or snap up a deal now and slash your repayments – but risk losing out on better deals down the line.
Oliver Dack, spokesperson for the Mortgage Advice Bureau, said: “A cut to the base rate is undoubtedly welcome news for the mortgage market and we hope it incentivises more people to look for a new deal.
“Recently, there’s been an increased appetite for shorter-term fixed deals among our clients; it seems people are open to reviewing rates more frequently – especially if they believe there’ll be further cuts to the base rate in the not-too-distant future.
“To this extent, we’ve also had more borrowers express interest in tracker mortgages, but it’s important to keep in mind these products can come with a greater number of restrictions and therefore don’t always offer much flexibility. We’d encourage anyone interested in a tracker mortgage to in order to ensure it’s suited to their circumstances.”
It’s worth noting that the average shelf life of a mortgage product rose from 15 days to 30 in July, but it’s still a good ide to act fast if you’re on the fence about a particular deal. The good news is that most lenders will allow you to secure into your next mortgage three to six months before your current deal finishes. This means you can tie in a rate now, and then keep an eye on the market. If rates subsequently fall before your new deal begins, you’re free to move to a better rate, but if rates rise, you have peace of mind that you’ve already secured a competitive deal.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
Is now a good time to get a mortgage?
It’s hard to say whether fixed rates will fall further in coming months, simply because it’s impossible to predict whether the current trend will continue or the mortgage market will suffer another unexpected blow that forces lenders to hike their rates – or if rates will simply stay around their current level and settle into a new normal.
Whatever lies ahead, it seems highly unlikely that average rates will reach the sub-3.00% levels seen prior to December 2021 anytime soon, so waiting around on your lender’s SVR for them to fall quite this low could end up being a costly move.
Fortunately the number of mortgage deals available on the market has risen significantly in the past year, and stood at 6,658 at the beginning of July. This is the highest number of products available to customers since 2008, and is a considerable improvement on the 4,396 products on offer in July 2023.
Those hoping to remortgage soon would also do well to remember that the lowest rate isn’t always the best deal once mortgage fees are factored into the equation, particularly if the loan capital is low or the term is relatively short. Read our article Why the lowest rate mortgage may not be the cheapest deal to learn more about how high fees can offset the benefit of a tempting low-rate deal.
If you are unsure about whether now is the time for you to seek out a mortgage, or which deal is right for you, then it could be wise to speak to an expert to make sense of the market and see what your best options are.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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