Will mortgage rates fall this year?

Average mortgage rates have risen slightly in September, despite the Bank of England cutting the base rate last month.

According to Moneyfacts, the average five-year fixed mortgage rate has climbed from 5% on 1 September to 5.02% on 8 September, while the average two-year deal has increased from 4.96% to 4.98% over the same period.

A range of mortgage lenders including HSBC, Nationwide, NatWest, Royal Bank of Scotland and Santander have hiked their fixed rates by up to 0.2%.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

It’s a surprising move given the central bank cut the base rate from 4.25% to 4% on 7 August.

Adam French, head of news at Moneyfacts, comments: “The Bank of England base rate may grab headlines, but there are many more rates and indices that influence the cost of borrowing. For starters, banks compete with one another for customers and appearing at the top of the best-buy charts is a great way of doing that, but once commercial targets have been reached, they may pull back for a time.

“Another major influence on the cost of fixed-rate mortgages is the rates banks charge one another to lend money, known as swap rates.”

Two-year swap rates have climbed from 3.655% to 3.752% and five-year swap rates have risen from 3.707% to 3.827%, since 7 August, according to Moneyfacts.

A range of economic factors can influence swap rates, from tariffs imposed by US president Donald Trump to inflation forecasts.

Shaun Sturgess, director at the broker Sturgess Mortgage Solutions, says lenders are “jittery” due to short-term market adjustments. “Lenders reprice in response to swap rate movements, which have risen modestly on the back of stubborn inflation data and the Bank of England’s more cautious stance.

“These fluctuations are part of a ‘bumpy’ downward trajectory: while the overall direction remains lower than six to 12 months ago, volatility in funding costs will continue to create occasional spikes.”

Higher mortgage rates spell bad news for home buyers and those remortgaging. When coupled together with speculation about property tax hikes in the Autumn Budget, it could affect house prices too.

Hina Bhudia, partner at Knight Frank Finance, explains: “The increases may only be a few tenths of a percentage point, but for borrowers that translates into a meaningful rise in monthly payments and will weigh further on sentiment already under strain from reports of likely changes to property taxation.”

Meanwhile, two-year mortgage rates dropped below five-year deals last month for the first time since former prime minister Liz Truss’s “mini-Budget”, as markets expect interest rates to fall only gradually in the near term.

The last time the two-year mortgage rate was below the five-year figure was 27 September 2022, when they were 4.78% and 4.79%, respectively.

French calls it a “symbolic turning point”. He tells MoneyWeek: “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding Truss’s mini-Budget in 2022, hitting this milestone shows lenders are competing more aggressively for business.”

French adds that with inflation forecast to spike at 4% in the autumn and not return to its 2% target until 2027 or beyond, interest rates are expected to fall gradually, not rapidly – and may mean “homeowners and first-time buyers will have to wait longer for more substantial reductions”.

While August’s base rate cut represents the third reduction of 2025, doubts are growing over whether we’ll see any more cuts this year. Some analysts expect the rate to now hold at – or just below – 4% well into next year.

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

Which mortgage lenders are raising rates?

Many lenders including Nationwide, Santander, Virgin and NatWest have raised their mortgage rates in recent weeks.

HSBC is one of the latest to announce rate hikes, with a host of changes kicking in tomorrow (9 September). The increases apply to two and five-year fixed rates for first-time buyers, home buyers, those borrowing more and remortgage rates. They also cover the bank’s green mortgages.

Bhudia comments: “We saw a handful of lenders edge fixed rates up after the Bank of England’s split decision last month and the stronger-than-expected wage growth that followed.

“What began as a marginal adjustment has now become a broader market move. Nationwide’s decision [on 5 September] to raise fixed rates by up to 0.2% marks a turning point – because they are typically the cheapest on the high street, and when they reprice, others tend to follow. In the past 48 hours, Virgin, Halifax and BM Solutions have also raised fixed rates, showing that momentum is building.”

Last month, Santander raised a number of residential and buy-to-let rates by up to 0.07 percentage points.

NatWest increased the rates on some of its fixed home loans by up to 0.2 percentage points on 27 August.

Nottingham Building Society, Coventry Building Society, Royal Bank of Scotland, NatWest Intermediaries Solutions, Gen H, Vernon Building Society and Hodge have also increased some of their rates.

Jack Tutton, director at the broker SJ Mortgages, comments: “The one thing financial markets don’t like is uncertainty and we have that by the truck-load at the moment. It’s for this reason that we have seen the cost of borrowing increase to levels higher than they were [in July].”

Despite the higher rates, there is some good news for mortgage customers with low deposits. According to Moneyfacts, the number of higher loan-to-value mortgages (90% and 95% LTV) has hit its highest level in 17 years, with 1,360 products to choose from.

What is the forecast for mortgage rates?

In terms of interest rate expectations, financial markets are currently pricing in less than a 50% chance of another rate cut in 2025. If another cut was to happen, it would likely happen in November.

The Bank made it clear last month that it won’t rush to lower rates.

While August’s cut from 4.25% to 4% was widely predicted, the Bank of England’s Monetary Policy Committee (MPC) voted 5-4 in favour of it with four members voting to hold rates unchanged, while one called for a 50-basis point cut.

Having almost half of the committee wanting to keep rates at 4.25% caught the market by surprise.

George Lagarias, chief economist at the advisory firm Forvis Mazars, comments: “While the rate cut was fully priced in by financial markets, the number of hawks on the MPC (four) is somewhat of a surprise.

“What will the move mean for consumers going forward? That there’s enough resistance in the Bank of England towards sharper cuts, for rates, and thus mortgages, to remain elevated for some time."

Laura Suter, director of personal finance at AJ Bell, adds: “Any homeowners who are hoping that [last month’s] cut will mean a drop in rates could be disappointed. The rate cut was widely expected, meaning that markets have priced in the rate cut for some time.

“It means the chop to rates is already reflected in fixed-term mortgage rates. Barring any bond market turmoil off the back of any comments made by the MPC, we’re unlikely to see a dramatic move in mortgage rates.”

The Bank’s Monetary Policy Committee will meet three more times this year to set the base rate (September, November and December).

Any cuts – or expected cuts – are usually favourable for mortgage rates. However, there are plenty of things that could derail interest rate predictions, and/or how mortgage lenders price their deals.

Nicholas Mendes, mortgage technical manager at the broker John Charcol, points out that mortgage rates may follow the path of interest rate cuts, “but not always in a straight line”.

He explains: “Fixed-rate pricing is driven by swap rates, and those move based on where markets think the Bank rate is headed, how inflation is trending, and what’s happening globally. A surprise data print, tariff announcement or geopolitical flare-up could all change the outlook overnight.”

In other mortgage news, the Financial Conduct Authority (FCA) has launched a discussion paper on the future of the mortgage market.

The regulator says that first-time buyers, the self-employed and people borrowing into retirement could benefit from changes to mortgage rules.

One option is to bring back interest-only mortgages; the FCA says: “We would like views on whether our rules could better support more interest-only mortgages”. Making equity release products more flexible could also be on the cards.

The regulator will report back later this year or next year about whether any mortgage changes will be implemented.

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 1.6 million fixed mortgage rates that is expiring this year, should you opt for another fixed deal?

David Hollingworth, associate director at the broker L&C Mortgages, says homeowners should start reviewing rates several months before their fix finishes. Locking in a rate now will offer protection against any future increases, and if rates fall before your current 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 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.

“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. There’s also the option of shorter 18-month to two-year fixed deals, allowing borrowers to reassess their options once rates have declined further.”

With two-year rates slightly cheaper than five-year deals on average, the incentive now, for many borrowers, will be to sign up for a shorter-term mortgage.

First-time buyers and those remortgaging will need to weigh up whether to go for a short-term rate, which is a bit cheaper, or lock in for the long term and shield themselves against any future rate increases.

Katie Brain, banking expert at Defaqto, comments: “Those that want the financial stability of knowing their mortgage payment is fixed for a prolonged length of time may consider five-year products or even longer.”

What about variable mortgage rates?

About 1.1 million homeowners are on variable-rate mortgages, which are linked to the Bank of England’s base rate, according to UK Finance. This includes tracker deals and standard variable rates (SVRs).

The average SVR is an eye-watering 7.32%, according to Moneyfacts. The average two-year tracker costs 4.67%.

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

Rachel Springall, finance expert at Moneyfacts, says: “It’s essential for borrowers not to delay finding a new deal, particularly if they are sitting on an expensive SVR.

“However, with the lowest rate mortgages grabbing the headlines, it’s vital borrowers seek advice to find the most appropriate package for them, and not just be swayed by the initial rate.”

What about buy-to-let rates?

According to Moneyfacts, the average two-year buy-to-let mortgage rate on 8 September was 4.89%, while the average five-year buy-to-let fix was 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.

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

There is also speculation that the Treasury is considering targeting landlords in the Autumn Budget by applying National Insurance to rental income.

What mortgage support is 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.

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