Fixed-rate mortgage deals have now dropped below 4 per cent, with many expecting rates to fall a little further in the coming months.
This downward trend follows the Bank of England’s recent decision to lower interest rates from 4.5 per cent to 4.25 per cent. It’s now anticipated that the central bank may introduce up to three further cuts before the year ends, rather than just two as previously forecast.
For most households, mortgage rates are currently sitting between 4 and 5 per cent. The specific rate available often depends on the borrower’s equity or the size of their deposit.
While the best sub-4 per cent deals are typically available to those with the highest levels of equity or largest deposits, buyers with just a 10 per cent deposit are still benefiting. Some lenders are offering rates as low as 4.34 per cent to those in this category.
Mortgage rates: what is happening
The Bank of England made the decision to lower interest rates in May, bringing the base rate down to 4.25 per cent.
This marks a total drop of one percentage point since August, when the rate was first cut from 5.25 per cent.
As a result, the mortgage market has become noticeably more stable compared to recent years.
In 2023, rising base rates and concerns over inflation led to a sharp increase in mortgage costs. Average two-year fixed rates peaked at 6.86 per cent during the summer, while five-year fixed deals climbed to 6.35 per cent, according to data from Moneyfacts.
Despite the recent cuts, current mortgage rates remain significantly higher than the historically low levels seen prior to the surge in 2022.
Just over three years ago, borrowers could secure a five-year fixed mortgage at around 2.5 per cent, and two-year deals were close to 2.25 per cent.
In fact, as recently as October 2021, some of the most competitive mortgage products were available at rates below 1 per cent.
Will mortgage rates go down or up?
Mortgage rates have been steadily declining over recent weeks, with reductions occurring almost daily.
According to data from Moneyfacts, the average two-year fixed mortgage rate has experienced its largest monthly drop in more than six months.
The same report also noted that two-year fixed rates have now reached their lowest levels since early September 2022, just before the economic disruption caused by the infamous ‘mini-Budget’.
Looking ahead, the Bank of England is widely expected to implement three further interest rate cuts in 2025, which could bring the base rate down to 3.5 per cent by the end of the year.
This growing expectation of falling rates has already influenced the Sonia swap rates — a key indicator used by lenders to price fixed-rate mortgages. These inter-bank lending rates project where mortgage pricing is likely to be over the next two to five years.
As of 16 May, the two-year Sonia swap rate stands at 3.77 per cent, while the five-year rate is at 3.78 per cent.
For fixed-rate mortgage deals to drop significantly further, these swap rates would need to decline even more in the coming months.
Inflation and mortgage rates spike
Mortgage rates began their upward climb towards the end of 2021, driven by rising inflation. In response, the Bank of England started increasing the base rate in an attempt to bring inflation under control.
The surge in inflation was largely caused by the economic aftermath of Covid-19 lockdowns, combined with the shock of Russia’s invasion of Ukraine in February 2022. These events caught central banks off guard, prompting a rapid series of interest rate hikes.
Rates spiked even more following the September 2022 mini-Budget introduced by Liz Truss and Kwasi Kwarteng. Their package of unfunded tax cuts unsettled financial markets, leading to a sharp increase in bond yields and mortgage costs.
When Liz Truss stepped down in October 2022, incoming Chancellor Jeremy Hunt reversed nearly all the mini-Budget measures. This helped stabilise the markets and brought borrowing costs — including mortgage rates — back down.
However, in spring 2023, a fresh set of stubborn inflation figures prompted markets to price in a potential peak base rate of 6.5 per cent. This caused renewed concern and pushed mortgage rates sharply higher over the summer.
Although inflation pressures later began to ease, they remained more persistent than initially expected. As a result, the Bank of England kept the base rate at 5.25 per cent throughout much of 2024.
Once inflation returned to the Bank’s 2 per cent target, the Monetary Policy Committee felt confident enough to lower the base rate to 5 per cent in August 2024, followed by another cut in November.
The Bank paused again in December, before making a further cut in February. However, when inflation ticked up once more, the Bank decided to hold rates steady in March.
According to the Office for National Statistics, inflation stood at 2.6 per cent in the 12 months to March — a drop from 2.8 per cent in February, and slightly better than market expectations.
Looking ahead, most economists expect the Bank of England to take a cautious approach. Its next interest rate decision is scheduled for 8 May.
Should you fix for two or five years?
Homeowners in the UK are currently facing a tricky decision when it comes to fixing their mortgage — whether to go for a two-year or a five-year deal. The difference between the rates has become quite narrow, making the choice less clear-cut.
At present, five-year fixed deals remain slightly cheaper on average. According to Moneyfacts, the average five-year fix is at 5.08 per cent, while the average two-year fix stands at 5.11 per cent.
Just a short while ago, five-year fixes were clearly more popular among borrowers. However, recent figures from UK Finance show a near-even split last year, suggesting opinions are now divided.
When deciding how long to fix your mortgage for, it’s important to consider more than just interest rate predictions. Your personal situation plays a major role.
If you think you might move house soon, or if you value the stability of knowing your monthly payments won’t change for a longer period, these are key factors to weigh up. Equally, you should think about how well you could manage a rise in your mortgage costs.
Any fixed-rate mortgage, whether two or five years, gives you certainty about your monthly payments. Those choosing shorter two-year fixes may be betting that interest rates will drop or stay low, making it cheaper when they remortgage later.
On the other hand, locking into a five-year fix offers longer-term peace of mind. Some borrowers might opt for this either because they fear rates will rise, or simply because they want stability for the next several years.
There’s also the option of a tracker mortgage, which could be appealing if you believe rates will continue to fall. Trackers typically move in line with the Bank of England base rate, and those without early repayment charges offer flexibility.
That said, tracker rates can be risky. If the base rate increases, your monthly payments will go up. Also, right now, most tracker products tend to be pricier than fixed-rate options.
Ultimately, the best mortgage deal will depend on your own circumstances. It’s always sensible to compare your options carefully and consider speaking to a reputable mortgage broker for personalised advice.
What are the best mortgage rates?
We’ve reviewed some of the most competitive mortgage deals currently available, based on a 25-year term for a £290,000 property — which is the UK’s average house price, according to the Office for National Statistics (ONS).
If you’d like to check the most up-to-date mortgage rates tailored to your own situation, you can use comparison tools such as mortgage finder services or best buy tables available online.
Please note that the deals listed here are aimed at people who are buying and moving home. Rates might differ slightly for first-time buyers or those looking to remortgage.
Landlords interested in finding the most suitable buy-to-let mortgage rates can explore separate resources designed specifically for that purpose.
The deals mentioned below are highlighted for having the lowest interest rates. However, they may not necessarily be the cheapest overall once arrangement fees and other charges are taken into account.
Bigger deposit mortgages
Five-year fixed rate mortgages
NatWest has a five-year fixed rate at 3.88 per cent with a £1,495 fee at 60 per cent loan to value.
Barclays has a five-year fixed rate at 3.89 per cent with £899 fees at 60 per cent loan to value.
Two-year fixed rate mortgages
Halifax has a 3.87 per cent two-year fixed rate deal with an £1,099 fee at 60 per cent loan-to-value.
Barclays has a two-year fixed rate at 3.87 per cent with a £899 fee at 60 per cent loan to value.
Mid-range deposit mortgages
Five-year fixed rate mortgages
NatWest has a five-year fixed rate at 4.05 per cent with a £1,495 fee at 75 per cent loan to value.
Principality Building Society has a five-year fixed rate at 4.07 per cent with a £1,395 fee at 75 per cent loan to value.
Two-year fixed rate mortgages
Principality Building Society has a two-year fixed rate at 3.95 per cent with a £1,495 fee at 75 per cent loan to value.
Barclays has a two-year fixed rate at 3.95 per cent with a £899 fee at 75 per cent loan-to-value.
Low-deposit mortgages
Five-year fixed rate mortgages
Virgin Money has a five-year fixed rate at 4.34 per cent with £995 fees at 90 per cent loan to value.
HSBC has a five-year fixed rate at 4.39 per cent with £649 fees at 90 per cent loan to value.
Two-year fixed rate mortgages
Virgin Money has a two-year fixed rate at 4.44 per cent with £995 fees at 90 per cent loan to value.
The Co-Operative Bank has a two-year fixed rate at 4.5 per cent with a £749 fee at 90 per cent loan to value.
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