Will mortgage rates fall this year?

Interest rates are expected to stay higher for longer – keeping mortgage pricing high.

The latest forecasts from the Office for Budget Responsibility (OBR), released ahead of the Spring Statement, suggest the Bank of England will cut rates from 4.5% to 3.8% by around the middle of 2026.

That is higher than its previous forecasts and is a reflection of economic uncertainty in the UK amid tax rises and inflationary concerns that may limit mortgage rate cuts.

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Borrowers have been boosted in recent weeks by falling mortgage pricing, especially in the aftermath of the Bank of England cutting rates in February.

But interest rates were held at its latest monetary policy committee meeting on 20 March.

The average two-year fixed mortgage rate is 5.33% (as at 28 March). The average five-year fix is 5.18%, according to Moneyfacts.

This compares to 5.52% for a five-year deal on 1 February, and 5.32% for a five-year rate before interest rates were cut that month.

There are now four mortgage lenders offering sub-4% deals – Barclays, Danske Bank first direct and Lloyds Bank – but not everyone will be eligible. For example, you may need a big deposit, to be a Premier banking customer or be buying a certain type of home.

Lloyds Bank has the lowest rate on the market currently, at 3.97%, but you need a 40% deposit and £999 fee.

First Direct offers a remortgage five-year rate at 3.99% with a £490 fee for those with a 60% loan to value (LTV), meaning you’ll need a 40% deposit.

You need to act fast if you see a new deal as Moneyfacts reports the average shelf-life of a mortgage has dropped to just 16 days, down from 36 days a month prior.

The latest inflation data, which showed that the cost of living measure cooled to 2.8% in February, has raised expectations of more imminent interest rate cuts.

Nicholas Hyett, investment manager at Wealth Club, said: "Falling inflation is a welcome bit of good news. While not yet back at the Bank of England's 2% target, the faster than expected decline in inflation opens the door to interest rate cuts in the future should the Bank feel the wider economy needs a helping hand.

"That could be needed, since there are potential readings of a lower inflation rate that are less than positive. While falling inflation might reflect improvements in supply, as wider economic shocks subside and supply chains adjust, it could equally reflect a drying up in demand due to economic weakness."

Interest rate cuts could prompt a further drop in mortgage pricing.

But while most people think of mortgage rates being most closely linked to interest rates, it’s actually swap rates that have the most influence.

Swap rates are affected by things like bond yields, and inflation and economic growth data.

In January, swap rates rose due to a surge in government bond (gilt) yields, which led to some mortgage lenders hiking their rates. But they have since dropped.

We take a closer look at the outlook for UK mortgage rates this year.

Which mortgage lenders are cutting rates?

Halifax, HSBC, Barclays, Coventry Building Society, NatWest, Virgin Money and Clydesdale Bank all cut some of their fixed mortgage rates last month (February).

For example, HSBC lowered a range of first-time buyer, home mover, remortgage and buy-to-let rates on 6 February. However, it did also raise some mortgage rates, illustrating how uncertain the current climate is.

More recently, The Mortgage Works cut rates by up to 0.3 points on 15 March across selected buy-to-let products for new customers, with rates now starting from 3.24%.

Halifax also reduced some fixed-rate deals by up to 0.14% on 5 March.

Rachel Springall, finance expert at Moneyfacts, comments: “The rate-cutting momentum was prevalent during February, with the average two- and five-year fixed rates seeing their biggest cuts in almost six months.”

What is the forecast for mortgage rates?

Markets are expecting another two or three interest rate cuts from the Bank of England this year. This should be favourable for mortgage rates, but experts warn that borrowers should "temper expectations", especially in the near future.

The OBR is expecting rates across all mortgages to rise from around 3.7% to a peak of 4.7% in 2028 – and hold steady around this level.

According to Simon Gammon, managing partner at Knight Frank Finance, "we’ll need a material shift in the outlook to enable mortgage rates to fall meaningfully".

He adds: "When that does come, we'd expect lenders to cut mortgage rates quite quickly. The banks are eager to make up for ground lost during the past two years of economic uncertainty and sluggish activity."

Rachel Springall, finance expert for Moneyfacts, says that while a fall in swap rates prompted mortgage lenders to drop rates last month, “it is uncertain whether the rate-cutting sentiment will be sustained in the weeks to come, particularly by significant margins”.

Bear in mind that the mortgage rate is just one aspect of a deal. Borrowers need to watch out for extra mortgage costs as some deals have high fees attached that could offset any savings compared with other deals with higher rates but lower charges.

According to Moneyfacts, average product fees on a fixed-rate mortgage deal (not including no-fee products) have risen to £1,129 – an increase of £89 since March 2020.

Should you fix your mortgage?

If the last two years of rises and falls have told us anything, it's that predicting falls in mortgage rates is not an exact science. So, if you have one of the estimated 800,000 fixed mortgage rates that is expiring this year, should you opt for another fixed deal?

David Hollingworth, of London & Country Mortgages, says homeowners should start reviewing rates several months before their fix finishes. Locking in a rate now will offer protection against future increases, and if rates fall before your fix ends, you can switch onto the lower rate.

However, do double-check the time window for locking in a new deal, as some lenders have reduced theirs to just three or four months.

Fixing your mortgage will provide peace of mind. However, if you're happy to take a gamble, and believe that interest rates will fall over the duration of your next mortgage deal, you could consider a base rate tracker.

Mendes at John Charcol comments: “The key concern for many borrowers is affordability. Those who locked in rates at 1-2% several years ago are now facing remortgage offers of around 4-5%, which could add hundreds of pounds to their monthly repayments. With no immediate rate cut expected, mortgage holders will need to consider their options carefully.

“Some may choose to fix their rate now for certainty, while others may opt for a variable or tracker mortgage in the hope that rates fall later in the year. There’s also the option of shorter 18 months to two-year fixed deals, allowing borrowers to reassess their options once rates have declined further.”

What about variable mortgage rates?

About 2.2 million homeowners are on variable-rate mortgages, which are linked to the Bank of England’s base rate. The average standard variable rate (SVR) is an eye-watering 7.68%. The average two-year tracker costs 5.19%.

Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall later this year, the money they save from getting rid of their expensive SVR earlier could make it worth it.

Springall notes: "It’s wise for borrowers to not delay refinancing their deal, as falling onto a revert rate would be costly. Those coming off the average five-year fixed deal from January 2020 would have been charged 2.74%, but the average SVR is now 7.68%, almost 5% higher.”

What about buy-to-let rates?

According to Moneyfacts, the average two-year buy-to-let mortgage rate today is 5.18%. while the average five-year buy-to-let fix is 5.40%.

These rates seem quite competitive compared to how high they have been over the past few years. Buy-to-let mortgage rates were pushing 7% in the summer of 2023.

Buy-to-let investors also have greater choice, with some 3,775 buy-to-let mortgage products available.

Landlords will be hoping for a fall in mortgage rates this year, to help offset the new 5% stamp duty surcharge and less generous mortgage interest tax relief.

A record number of previously-rented homes are being listed for sale, as financial strain pushes landlords to sell up.

Mortgage support available

Mortgage rates are much higher than when many people would have last remortgaged. Millions of homeowners will be coming off rates as low as 1% or 2%.

If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.

The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.

Around 1.4 million mortgages have benefitted from the mortgage charter since it was introduced in June 2023, according to data from the City watchdog.

Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments. Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties.

Should I overpay my mortgage?

If you’ve got some spare cash and you're on a low rate, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate.

Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.