What's happening to UK mortgage rates?

Mortgage rates are on the rise, while some of the best deals are being pulled in a matter of days. But could interest rates fall soon?

Multi-coloured vibrant row of terraced houses in Notting Hill, London as mortgage rates remain high
Mortgage rates have been rising this year - is better news on the way?
(Image credit: Alexander Spatari)

Mortgage rates have risen for four months in a row as hopes of an interest rate cut get pushed further back.

Analysts had hoped the Bank of England would reduce the base rate in the spring. Predictions keep being revised though; the latest forecasts point to a first cut in August or September.

The base rate is currently at a 16-year high of 5.25%.

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Average mortgage rates on two- and five-year fixed-rate deals crept up by 0.02% in May, according to Moneyfacts. In April, rates rose by 0.1%, in March they increased by about 0.04%, while in February average rates ticked up by 0.18%.

In addition to higher rates, first-time buyers and those remortgaging will be dismayed to find that the best mortgage deals are being pulled fast.

Data from Moneyfacts reveals that the average shelf-life of a mortgage has dropped to 15 days, down from 28 days last month.

However, some lenders like Santander and Halifax have been making ad-hoc cuts to select mortgage rates. And if the Bank does finally cut rates this summer, we should see average mortgage rates start to tumble.

Having said that, the halcyon days of 1% or 2% mortgage rates are unlikely to return in the near future. That could come as a shock for borrowers looking to remortgage from rates they secured five years ago. 

About 1.5 million households who need to remortgage this year will see their payments rise by £1,800 a year on average, according to the Resolution Foundation.

Meanwhile, an increasing number of young people are taking out "ultra-long mortgages" that they will still be paying off in retirement. They are doing this in a bid to get on the housing ladder, as well as lower their monthly repayment costs.

But is better news on the way? Here's everything you need to know.

Are lenders cutting mortgage rates?

According to Moneyfacts, the average two-year fixed-rate mortgage is priced at 5.97% (correct as of 12 June). The average five-year deal comes in at 5.53%.

Rates were lower earlier this year: on 1 February, the average two-year fix was 5.56% while the average five-year deal was 5.18%. This followed some aggressive price cutting by lenders in the New Year.

But mortgage rates have ticked up every month since then.

Prices have remained high despite last month's rate reductions from Halifax (-0.19%), TSB (-0.4%) and Leeds Building Society (-0.2%). 

Santander is the latest lender to trim rates. Yesterday it cut some of its fixed rates across its purchase, remortgage, buy-to-let and new-build ranges. For example, its 90% LTV (loan-to-value) five-year residential purchase mortgage with £999 product fee is now priced at 5.10%, down from 5.20%. 

According to Nicholas Mendes, mortgage technical manager at broker John Charcol, inflation remaining above the Bank of England's 2% target has been a big factor in why rates haven't come down across the board. He said the rate of price rises was "delaying" interest rate cuts, which was having a subsequent impact on swap rates.

"Fixed rates are priced on swap rates," Mendes explained. "This is a financial agreement where two parties exchange interest rate payments. Typically, one party pays a fixed interest rate, while the other pays a variable rate that fluctuates with market conditions.

"When swap rates rise, it signals that the market expects higher future interest rates, prompting lenders to increase mortgage rates to maintain their profit margins. Conversely, when swap rates fall, it indicates expectations of lower future rates to stimulate economic growth, leading to reduced mortgage rates."

Mendes said that until the Bank of England's first interest rate cut is announced, he expects any fixed rate declines to be "gradual and steady". But he added that cuts are "only a matter of when and not if".

What's the outlook for mortgage rates?

Last month, markets were pricing in a Bank rate cut for June. The next Monetary Policy Committee (MPC) meeting is on 20 June.

However, due to the general election on 4 July, there is now an expectation that the first rate reduction won't happen until the Bank of England's August or September MPC meetings. The Bank has never cut rates immediately before an election since it was made independent in 1997.

Even if rates do come down further later this year, the lows of the late 2010s are unlikely to be replicated. Mendes at John Charcol said: "No one can accurately predict where rates will be in a couple of years’ time. But it is clear that cheap rates are a thing of the past."

He added: "Preparing in advance of when your deal is due for renewal will help soften the blow and avoid putting sudden pressure on your outgoings."

While the economic outlook is still difficult for many people, there is a bit of hope for some property buyers. For example, some lenders are offering more innovative products, which could aid first-time buyers. One of them is Yorkshire Building Society, which unveiled a 99% loan-to-value mortgage in March.

Meanwhile, Santander has launched a range of buy-to-let trackers for those wanting a large loan.

Its 60% LTV two-year tracker has a £1,999 remortgage or purchase fee for loans up to £5 million. The rate is 6.04%. Its 75% LTV two-year tracker has a rate of 6.24% with a £1,999 remortgage or purchase fee for loans up to £3 million. 

The mortgage rate is just one aspect of a deal though. 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. 

Mortgage product fees have increased to £1,141 on average as of early June, up £65 compared with a year ago.

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. 

There's been a larger range of mortgage deals available this year. In fact, there are currently 6,629 options, according to Moneyfacts - the highest level since February 2008.

But, mortgage products don't hang around for long. The average shelf-life of a mortgage has dropped to 15 days, its lowest since March, and down from 28 days last month. The lowest shelf-life average on Moneyfacts' records was 12 days in July 2023.

The comparison website also reported that a small number of lenders were pulling higher loan-to-value (LTV) mortgages from sale.

The higher the LTV you have, the lower the amount of equity you own in your home. LTV rates of 90% and higher tend to cover the mortgage products used by first or second-time buyers.

Moneyfacts found the number of fixed deals at 90% LTV has fallen from 700 to 696 since 23 May, while the number of 95% LTVs has dropped from 329 to 326 over this period. Hanley Economic Building Society, Principality Building Society, Saffron Building Society, and Vernon Building Society were among the lenders who withdrew high LTV products.

Finance expert at Moneyfacts, Rachel Springall, said: “The fact that a few lenders are withdrawing some higher loan-to-value products may raise eyebrows, but we are not seeing a mass exit. However, should more deals be withdrawn at higher loan-to-values, it may come as disappointing news to those who have a limited deposit, such as first-time buyers."

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 in 2024, 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. Or, even better, get a qualified mortgage adviser to do it for you."

She was echoed by Mendes, who urged people to not take a "wait and hope approach". He said remortgagers can lock in a rate six months before their deal is set to expire, and jump to another deal with that lender if rates go down.

What about variable mortgage rates?

About 2.2 million homeowners are on variable-rate mortgages, which are tied to the Bank of England’s base rate. The average standard variable rate (SVR) is an eye-watering 8.18%, while slightly less flexible trackers are at 5.94%.

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

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 12 June, average buy-to-let rates were 5.55% for a two-year fix, and 5.57% for a five-year deal, Moneyfacts said. However, rates still remain high relative to pre-cost of living crisis levels.

These high buy-to-let mortgage rates - coupled with a 3% stamp duty surcharge and less generous mortgage interest tax relief - are making things tough for landlords. But sentiment in the sector remains mostly positive, according to recent research by Leaders Romans Group.

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.

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 much higher rate.

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

Henry Sandercock
Staff Writer

Henry Sandercock has spent more than eight years as a journalist covering a wide variety of beats. Having studied for an MA in journalism at the University of Kent, he started his career in the garden of England as a reporter for local TV channel KMTV. 

Henry then worked at the BBC for three years as a radio producer - mostly on BBC Radio 2 with Jeremy Vine, but also on major BBC Radio 4 programmes like The World at One, PM and Broadcasting House. Switching to print media, he covered fresh foods for respected magazine The Grocer for two years. 

After moving to NationalWorld.com - a national news site run by the publisher of The Scotsman and Yorkshire Post - Henry began reporting on the cost of living crisis, becoming the title’s money editor in early 2023. He covered everything from the energy crisis to scams, and inflation. You will now find him writing for MoneyWeek. Away from work, Henry lives in Edinburgh with his partner and their whippet Whisper.

With contributions from