Mortgage rates rose following Labour's first Budget in October, but some lenders are now starting to cut rates as the year draws to a close.
Barclays is trimming some of its mortgage deals by up to 0.14% tomorrow (10 December), while TSB is lowering rates by up to 0.25%.
Homebuyers and remortgage customers have been on a rollercoaster over the past few months, with some lenders cutting rates, others hiking rates - and some lenders doing both simultaneously.
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The increases came despite the Bank of England cutting interest rates from 5% to 4.75% last month.
The volatility in the mortgage market followed Rachel Reeves's first Budget, which announced a series of policies that would cost almost £70 billion, half of which would be paid for by tax hikes and greater tax compliance.
According to the Office for Budget Responsibility (OBR), the other half is funded by a £32 billion (1% of GDP) a year increase in borrowing, "one of the largest fiscal loosenings of any fiscal event in recent decades".
It means the OBR has increased its inflation forecasts - the cost of goods is not projected to come down to the Bank of England’s 2% target until 2029 - and also added 0.25% to its forecasts for interest rates over the next five years.
Gilt yields have increased, and mortgage rates have gone up.
Within hours of the Autumn Budget, Virgin Money announced rate increases of up to 0.15% across its range. Some smaller mortgage lenders withdrew deals and Santander, HSBC, Nationwide and TSB also hiked rates.
According to Moneyfacts, average five-year fixed mortgage rates saw their biggest monthly rise since August 2023.
David Hollingworth, associate director at L&C Mortgages, notes that a number of lenders had managed to hold fixed mortgage rates below 4%, but now "all major UK lenders’ fixed rates have once again edged back above 4%".
The average two-year fixed-rate mortgage is now priced at 5.49% as at 9 December, up from 5.42% a month ago, according to Moneyfacts.
The average five-year deal comes in at 5.27%, compared to 5.14% a month ago.
Mortgage rates had generally been tumbling during the summer and into the autumn - spurred on by the Bank reducing rates from 5.25% to 5%, the first rate cut since 2020 - on 1 August.
Nationwide became the first major lender to offer a sub-4% deal since February when it unveiled a 3.99% five-year mortgage in July. Coventry Building Society, HSBC, Lloyds, NatWest, TSB and Virgin Money also released sub-4% five-year rates.
But Budget uncertainty meant some lenders including Coventry BS, Santander and TSB put rates up, and this continued following Reeves' Budget speech on 30 October.
There is one more Monetary Policy Committee meeting to set interest rates this year on 19 December. Most experts are expecting there to be no change.
While several lenders are lowering mortgage rates this week, there is still an uncertain outlook. Hollingworth advises borrowers considering a fixed-rate option "to move quickly to secure a deal as we’re seeing some rates withdraw with very little notice".
Some lenders are also reducing their "lock in" windows meaning homeowners have less time to switch to a cheaper rate.
So, will mortgage rates fall further this year and into 2025? Here's everything you need to know.
Which mortgage lenders have raised rates?
HSBC announced a host of changes to its residential mortgage products last month. Most of the changes were rate hikes. However, a handful of rates fell, such as its two-year fixed fee saver at 60% loan-to-value.
Meanwhile, Coventry BS increased fixed rates for new and existing borrowers (for residential and buy-to-let). It also closed all offset fixed-rate deals with no fee.
Halifax simultaneously hiked and cut a selection of its mortgage rates on 1 November.
Nicholas Mendes, mortgage technical manager at the broker John Charcol, comments: "These adjustments align with similar moves from major lenders such as Barclays, Santander and NatWest, who have all reacted to fluctuations in swap rates. While these repricing changes signal short-term market volatility, they don’t necessarily indicate a long-term trend."
Which mortgage lenders are cutting rates?
Barclays is reducing rates across its five-year fixed-rate residential purchase and remortgage range from 10 December.
Its five-year rate for property buyers at 60% loan to value (LTV) that’s also fee-free will reduce by 0.14%, to 4.2%. A similar product, but with a £899 product fee, will drop from 4.18% to 4.11%.
Meanwhile, remortgage deals will fall by between 0.05% and 0.1%.
TSB also annouced today that it would reduce the rates on eight mortgage deals, effective from tomorrow (10 December). This includes a mix of residential, product transfer and additional borrowing products.
What is the forecast for mortgage rates?
The Bank of England cut interest rates for the second time this year from 5% to 4.75% during its latest Monetary Policy Committee meeting on 7 November. A further cut was previously forecast for December, but this has now been reversed.
Laith Khalaf, head of investment analysis at AJ Bell, comments: “The sizeable fiscal loosening announced by the chancellor has prompted markets to pretty much rule out two interest rate cuts [following the Budget] this year."
However, he thinks that the Budget, which looks to have materially changed the inflationary path, "may well make the Bank’s rate-setters sit on their hands for the time being".
According to Khalaf, mortgage rates could creep up again in the short term, due to a rise in gilts.
But, the overall trend is for mortgage rates to fall over the long term, given further interest rate cuts are expected next year.
Bank governor Andrew Bailey told the Financial Times last week that policymakers could cut the base rate four times in 2025.
The latest OBR forecast sees interest rates falling to 3.5% from 2027 onwards.
But how far mortgage rates fall also depends on swap rates. Swap rates are based on what the markets think interest rates will be in the future. They influence the price of fixed-rate mortgage deals, so if swap rates go down, mortgage rates tend to go down. If they go up, so do mortgage rates.
Soaring swap rates were partly to blame for rising mortgage rates earlier this year, even though there had been no change to the base rate.
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. For example, some of Barclays' mortgage deals have fees in excess of £1,000, including some with a price tag of £2,495.
What's mortgage availability like?
Mortgage product availability has dipped whenever rates have surged. In the wake of Liz Truss's mini-Budget in 2022, not only did two and five-year fixed deals go up by more than a percentage point, 1,700 lender products - 40% of the market at the time - disappeared from sale in the space of a week.
In the summer of 2023, when rates rose even higher, almost 800 deals - 10% of the market - were withdrawn by lenders.
The number of mortgage deals on offer has dipped in recent months, following the increase in rates. In October (before the Budget) there were 6,645 options, according to Moneyfacts. Today (9 December) there are 6,486 mortgage products available.
However, the average shelf-life of a mortgage rose from 17 days to 21 days between October and November. Moneyfacts notes that this indicates that lenders are not re-pricing or pulling deals as aggressively as they were during October.
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're one of the 1.5 million households whose fix is expiring this year, should you opt for a fixed deal?
According to Jo Jingree, MD of mortgage advice firm Mortgage Confidence, the answer is yes. She told MoneyWeek: "If your fixed rate is ending, I would always recommend securing a new rate now even if rates are falling, as it’s impossible to know how long that trend will continue for and rates could start to rise again at any time.
"We have seen a very fluctuating market over the last few months so secure and monitor is my advice."
She was echoed by Mendes at broker John Charcol, who urged people to not take a "wait and hope approach". He said remortgagers can lock in a rate up to six months before their deal is set to expire, and jump to another deal with that lender if rates go down.
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 recently.
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 7.85%. The average two-year tracker costs 5.46%.
Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall next year, the money they save from getting rid of their expensive SVR earlier could make it worth it.
Analysis by Compare the Market reveals homeowners on an SVR mortgage could save up to £330 a month by switching to a fixed-rate deal, the equivalent of £3,960 a year. This is based on moving from an average SVR to an average five-year mortgage rate.
What about buy-to-let rates?
Last summer, buy-to-let mortgage rates were pushing 7%. They have since come down from these sky-high levels. As of 9 December, average buy-to-let rates were 5.35% for a two-year fix, and 5.46% for a five-year deal, Moneyfacts said.
These high buy-to-let mortgage rates - coupled with a new 5% stamp duty surcharge and less generous mortgage interest tax relief - are making things tough for landlords.
There is now a record number of previously-rented homes 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.
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