Two-year fixed mortgage rates have fallen below 5% for the first time since June, providing some relief for homeowners struggling with the rising cost of living.

Nationwide is the first major lender to cut its fixed mortgage rates by up to 0.38 percentage points across the board. The building society has reduced the interest rate on a two-year fixed rate with a 60% loan to value from 5.24% to 4.99%. Nationwide is also now offering a five-year fixed rate at 4.64%, offering hope to homeowners that rates are heading in the right direction.

The rate cuts have come despite predictions that the Bank of England may hold interest rates at their current level for a year or longer. The Bank of England held the base rate at 5.25% in November, only the second time in almost two years that we haven’t seen a hike. However, the rate remains at its highest since the financial crisis of 2008.

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 1,000 reviews.

Why are mortgage rates falling?

Teddy Cenaj, mortgages expert at Rest Less Mortgages, said: “It seems like lenders are competing to offer the cheapest rates as the housing market is slowing. They’ve had a poor year for mortgage lending, and now we’re coming towards the end of 2023, it seems they are fighting to get as much business as possible. It’s been months since two-year fixes have started with a 4, and other lenders are likely to follow suit.

“Compared to where rates were in the summer, the cuts are significant, and a positive move after months of high rates. Rate cuts are good news for those who are remortgaging, although many people will still be coming off significantly lower rates. For buyers it’s good news as property prices are down, and with rates continuing to fall it puts them in a better position.”

However, fixed rate mortgage rates are primarily based on what’s happening to ‘swap’ rates, which are the rates that institutions charge each other to borrow money. Swap rates are affected by the wider economic outlook and predicted movements in the Bank of England’s base rate. Swap rates currently suggest that interest rates may fall more quickly than expected, now inflation has started to ease.

The average two-year fixed mortgage rate has fallen to 6.22% from 6.94% in June, according to financial analysts Moneyfactscompare.co.uk. Other major lenders to reduce mortgage rates recently include NatWest, HSBC and Halifax. Remember that these are only average rates, so it is possible to find fixed rates much lower than this, although the best deals are usually only reserved for those with substantial equity and good credit records.

Aaron Strutt, product and communications director at London brokers Trinity Financial, said: “We now have two, three, five and ten-year fixed rates available below 5% which is good news and hopefully should bring a bit more confidence to the market.

“The Bank of England’s decision to hold the base rate has provided more stability, which has helped lower funding costs. We are in an unusual situation where many of the cheapest deals are much lower than the Bank of England base rate.

“While it has taken quite some time for mortgage rates to come down, particularly since the mini-budget, they are now much more competitively priced than they were.”

Lewis Shaw, from the broker Shaw Financial Services, said: “These latest rates from Nationwide are a watershed moment. It should also mean we see other lenders follow suit, leading to a much more competitive market over the next few months when transaction levels drop naturally leading up to Christmas.”

Get expert mortgage advice*

Looking to discuss your mortgage options? Rest Less members can book a free mortgage consultation from Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,000 reviews.

Get mortgage advice*

Get expert mortgage advice

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 1,000 reviews.

Despite the latest rate cuts, mortgage costs have risen significantly since 2021. If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher mortgage costs.

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.