Will mortgage rates fall this year?

Mortgage rates have fallen following a widely-expected cut to the Bank of England base rate, with three lenders now offering the first sub-4% deals of the year.

Santander launched two-year and five-year fixed deals at 3.99% last week (13 February), available to both home buyers and those remortgaging. Beware that they come with a hefty fee, of £1,999 or £1,749 for purchase and remortgage respectively.

However, the bank is pulling its five-year fix at the end of today (21 February), and experts say that customers interested in the lowest mortgage rates should act quickly in case they're withdrawn too. Santander's two-year 3.99% deal remains in place.

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David Hollingworth, associate director at the broker L&C Mortgages, says that the unexpected jump in inflation - inflation increased from 2.5% in December to 3% in January - means the cheapest mortgage deals "could be under threat", and that Santander had pulled its deal "citing an increase in market rates as the driver".

He adds: "It’s not a need for panic but borrowers that have been considering a new deal may want to reach a decision sooner rather than later in case of more movement in rates."

Barclays has also unveiled a 3.99% five-year fixed mortgage deal. It comes with a £899 product fee, and you'll need a 40% deposit. It's reserved for Premier customers or those buying an energy-efficient home.

Meanwhile, Lloyds has a remortgage rate at 3.98% for its Club Lloyds banking customers.

These are the first rates from high-street lenders to drop below 4% since last November.

Many mortgage lenders have reduced their rates following the Bank decision earlier this month, which saw interest rates cut from 4.75% to 4.5%.

Barclays has slashed rates by up to 0.36% on a number of its mortgage deals. For example, its 5.33% Great Escape 5 Year Fixed £0 product fee, 85% loan-to-value LTV, has dropped to 4.97%.

TSB also cut mortgage rates by up to 0.15% on select two-year and five-year deals.

NatWest chopped some of its mortgage rates last week, by up to 0.36%.

Other lenders that have trimmed mortgage rates over the past week or so include Halifax, HSBC, Virgin Money, Coventry Building Society and Clydesdale Bank. In an interesting twist, Halifax is increasing its tracker product rates too, by up to 0.18%, presumably because trackers are now becoming more popular as experts predict interest rates will be cut further this year.

Halifax and Nationwide will also cut some of their fixed rates today (21 February).

However, while the interest rate cut - and the new 3.99% deals - represent good news for borrowers, mortgage rates may only drift down slowly.

That's because mortgage rates are also influenced by swap rates, which are affected by things like bond yields, and inflation and economic growth data. The January inflation figures released this week could put some "serious drag on any further momentum building for fixed rate mortgage cuts", according to Hollingworth.

He adds: "With margins so tight for lenders, it could at best see fixed rates holding or at worst apply some upward pressure."

Last month, swap rates rose due to a surge in government bond (gilt) yields, which led to some mortgage lenders hiking their rates.

Nicholas Mendes​​​​, mortgage technical manager at the broker John Charcol, says that two- to five-year swap rates are currently around 4%, "representing a notable decline compared to this time last month".

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 have all cut some of their fixed mortgage rates this month (February).

Barclays reduced some of its two-year and five-year deals, for both property purchases and remortgage customers, on 4 February. Another round of cuts came into effect on 13 February.

Virgin Money has trimmed rates by up to 0.1% across some of its purchase, buy-to-let and product transfer deals.

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.

If you're on a base rate tracker, your mortgage rate will automatically fall thanks to the Bank of England rate cut.

A borrower with a £200,000 25-year repayment mortgage could see payments fall by £29 per month, according to L&C Mortgages.

Lenders may also pass improvements through to standard variable rates (SVRs), but those are not guaranteed.

Santander said it would drop its SVR by 0.25 points to 6.75% on 3 March, following this month's base rate cut.

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.

Marylen Edwards, director of mortgages at specialist lender MT Finance, says: “The Bank rate reduction is likely to catalyse increased market activity, potentially offering first-time buyers a more favourable entry point. However, the market response is expected to be measured and nuanced.

"While the cut represents a positive shift, borrowers should temper expectations, as mortgage rates may not immediately reflect the full extent of the base rate reduction.”

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 at Moneyfactscompare.co.uk, says fixed mortgage rates rose last month, due to volatility in swap rates. In fact, the average five-year fixed rate hit a six-month high of 5.32% on 1 February. Two-year deals stood at 5.52%.

However, they've come down now: the average five-year fix currently stands at 5.22%, while the average two-year fix is 5.39% (as at 21 February).

Springall adds: “The future of interest rate pricing remains unpredictable, but sticky inflation and wider economic uncertainty could limit the Bank of England’s Monetary Policy Committee from making aggressive cuts this year. However, there will be plenty of reasons for lenders to entice new business during 2025, and the government wants them to do more to boost growth in the economy, thus the debate on the loosening of lending rules."

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.

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?

Hollingworth 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.

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 7.78%. 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 7.78%, more than 5% higher.”

What about buy-to-let rates?

According to Moneyfactscompare.co.uk, the average two-year buy-to-let mortgage rate today is 5.26%. while the average five-year buy-to-let fix is 5.22%.

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 of mortgage products, with some 2,220 products currently available, up 12.9% over the last year, according to research by mortgage adviser Alexander Hall.

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.