It’s been a long and challenging year for mortgage customers, but falling fixed rates mean that at last there may be some light at the end of the tunnel.

Average rates on two-year and five-year fixed rate mortgages have fallen to a seven-month low, according to data from Moneyfactscompare.com.

This is encouraging for anyone who has been waiting to take out a mortgage or remortgage, but been put off by sky-high rates.

The average two-year fixed rate now sits at 5.66%, the lowest it’s been since June, while the average five-year rate is 5.28%. As of this month, some five-year fixed rate deals below 4% are available for the first time since last summer, though you’ll need some considerable equity or a sizable deposit to qualify for these deals.

Teddy Cenaj, mortgages expert at Rest Less Mortgages, said: “We’re seeing more purchase inquiries which is great, and goes to show the impact that decreasing rates can have. However, although we have seen some very healthy trends going into 2024, overall it’s been a very unstable 12 months.

“We’re hoping to see the market strengthen further this year, and fixed rates falling below 4% is great news. It’s good news on the whole, but we aren’t out of the woods yet.”

Indeed, while falling rates are always a positive trend 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 than their standard variable rates (SVRs), which is usually the most expensive rate on the market. Rates remained substantially higher than a few years earlier.

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% (it’s now been held at 5.25% for three consecutive months).

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.

The chart below shows the dramatic path average fixed mortgage rates have taken 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 at an eye-watering 8.19%, the highest since records began in July 2007. 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.

Rachel Springall, Finance Expert at Moneyfacts, said: “These falls will come as good news to borrowers across the spectrum, including first-time buyers. Those borrowers with small deposits will find that average rates are now down considerably from just a few months ago, with the average two-year fixed rate at 90% and 95% LTV resting at 5.81% and 5.69% respectively, down from 6.81% and 7.10% in August 2023, which was the highest monthly point in 2023.”

It’s worth noting that the average shelf life of a mortgage product has fallen from 20 days to just 17, meaning you may need 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 (most have no upfront cost), 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.

Is now a good time to get a mortgage?

It’s hard to say whether fixed rates will actually 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.

There is some good news to cling to, however, as the number of mortgage deals available on the market has risen significantly in the past year, and currently stands at 6,096. This is the highest number of products available to customers since 2008, and is a considerable improvement on the 4,432 products on offer in July 2023. 

Demand for homes is still low overall, however, given the challenges of meeting affordability criteria and relatively high mortgage rates. This is bad news for those looking to sell their home to fund a move, but potentially good news for first-time buyers seeking a discount, with sellers knocking off an average of £18,000 from their original asking price just to offload their properties, according to property website Zoopla. Read more in our article Sellers accept biggest discounts in five years: is now the time to buy?

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.

Rest Less Money is on Instagram! Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.