What's happening to UK mortgage rates?

Mortgage pricing has started to drop as lenders anticipate an interest rate cut in the coming months

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 remain high but major lenders have started reducing pricing in anticipation of interest rate cuts in the coming months.

It comes as mortgage rates have been on the rise since earlier this year. Average mortgage rates on two- and five-year fixed-rate deals crept up by 0.02% between May and June and have been on the rise since February, according to Moneyfacts.

Analysts had hoped the Bank of England would reduce the base rate in the spring, which could prompt lenders to lower their mortgage rates, but that has been delayed by high wage growth data as well as the general election.

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The latest forecasts point to a first cut in August or September but many lenders appear to be preparing already after inflation fell to the Bank's 2% target during May.

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

Even without an interest rate cut, lenders including Barclays, HSBC and Santander have been making ad-hoc reductions 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 5.91% (correct as of 16 July). The average five-year deal comes in at 5.49%.

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.

Major lenders started cutting rates at the end of June, led by Barclays and HSBC and followed by Halifax, Nationwide and NatWest.

Barclays cut some of its rates last Friday. Its two-year rate with a 40% deposit for new buyers is now 4.49% (previously 4.67%). It also has a five-year rate for remortgagers priced at 4.31% (previously 4.46%).

Earlier this month, Nationwide reduced selected mortgage rates by up to 0.30 percentage points, with rates now starting from 4.18%.

Nicholas Mendes, mortgage technical manager at broker John Charcol, suggests more cuts could come while swap rates remain steady.

"This stability has enabled lenders to avoid continuous repricing and focus on enhancing their service levels in preparation for the next repricing battle, reminiscent of earlier this year," he says.

"Given that most recent lender repricing has involved increases, there is now potential for reductions."

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?

In May, markets were pricing in a Bank rate cut for June. 

However, the Bank of England held off on cuts at its latest monetary policy committee (MPC) meeting, especially due to the general election.

There is now an expectation that the first rate reduction won't happen until the Bank of England's August or September MPC meetings

Even if rates do come down further later this year, the lows of the late 2010s are unlikely to be replicated. Mendes says: "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 adds: "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.

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 6,736 options, according to Moneyfacts - the highest level since February 2008.

First-time buyers also have more choice, with the product range hitting a two-year high.

There are now 361 mortgage deals on the market that have a 95% loan-to-value, up from 270 in January, according to  Moneyfacts.

There’s more good news for those mulling over mortgage deals: you now have longer to pick the best product for you.

The average shelf-life of a mortgage had dropped to just a couple of weeks, forcing buyers and homeowners to choose quickly if they wanted to secure a deal.

However, the average shelf-life of a mortgage is now 30 days, up from 15 days last month, according to Moneyfacts. 

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. 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 8.17%, 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 16 July, average buy-to-let rates were 5.47% for a two-year fix, and 5.52% 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 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