Mortgage rates across the UK have dropped to levels last seen before the request bouleversement caused by the September 2022mini-budget, offering important- required relief for homebuyers and homeowners looking to remortgage.
According to Moneyfacts, the average two- time fixed mortgage rate now stands at 4.86%, while the typical five- time fixed deal has fallen to 4.85%.
For the first time since May 2023, five-time fixes are below the 5% mark, signalling a rare occasion for borrowers to secure further affordable home loan rates.
The recent reductions follow a flurry of moves by lenders. Last week, 24 banks and building societies cut their rates, with some slashing prices by as much as 0.35 percentage points.
The activity is being described as a “price war” in the UK mortgage market, with lenders competing aggressively to attract new customers ahead of an expected base rate cut.
Economists widely expect the Bank of England to reduce the base rate from 4% to 3.75% when its Monetary Policy Committee meets on 18 December, which would mark the fifth reduction in 12 months.
Financial markets are also anticipating further cuts into 2025, and lenders appear to be pricing these in when setting their fixed mortgage deals.
Adrian Anderson, director of mortgage broker Anderson Harris, explained: “The main reason we are seeing these reductions is that swap rates are falling, which shows that markets feel quite confident that there will be base rate reductions in the future.”
He added: “The markets are also pricing in two base rate reductions next year.”
Anderson described the current environment as highly competitive. “It’s like a price war,” he said, highlighting that lenders are sharpening their deals to win new business while keeping margins tight.
Rachel Springall, a Moneyfacts spokesperson, said: “There were double the number of lenders making rate tweaks compared with the week before.
As swap rates have been falling, alongside expectations for a base rate cut this month, it’s perhaps no surprise to see so many lenders improving their range.”
Major lenders cut mortgage rates across the board
Several of the UK’s leading banks and building societies have taken part in the latest round of reductions:
- Nationwide cut selected mortgage products by up to 0.21 percentage points. Its two-year fixed rate at 60% loan-to-value is now 3.58%, the lender’s lowest since September 2022.
- Barclays reduced certain deals by 0.18 percentage points.
- HSBC cut some offers by 0.12 percentage points.
- NatWest trimmed selected rates by 0.2 percentage points.
- First Direct led the way with reductions of up to 0.35 percentage points.
These cuts show that banks are keen to remain competitive in an environment where remortgage rates and fixed mortgage deals are key factors for borrowers considering switching or moving home.
How do today’s mortgage rates compare with last year’s?
Just over a few years ago, adoption costs were at some of the loftiest levels in over a decade. In August 2023, the average five-year fixed rate peaked at 6.85%, while two-year deals reached 6.22%.
The sharp increase followed the request dislocation caused by the 2022mini-budget, when unfunded duty cuts caused investor query and pushed borrowing costs advanced. Rates climbed further the ensuing summer as affectation enterprises persisted.
This is a marked change from 2020 and 2021, when mortgage deals occasionally fell below 1% thanks to the Bank of England’s low base rate of 0.1%.
Anderson noted that political and economic factors continue to influence mortgage affordability.
“While rates were rising before the mini-budget, the political turmoil accelerated the increase. Now, lenders are pricing in future cuts, which is encouraging for borrowers.”
What UK borrowers can expect in 2025?
Looking ahead, analysts suggest that the UK mortgage market may see continued interest rate cuts and improved affordability.
David Hollingworth from L&C Mortgages said that lower buyer activity is another factor pushing lenders to cut rates.
“You have got lenders competing hard and keeping their margin really quite skinny. This means that when there is an improvement in outlook, it passes on quite quickly to customers,” he explained.
Adrian Anderson also highlighted that government policy is having a subtle but positive effect: “While many people might have thought the budget was disappointing in terms of tax increases, from a mortgage interest rate perspective, it wasn’t inflationary.
This meant the markets reacted quite positively, and this has helped the mortgage market.”
For UK homeowners and first-time buyers, the current conditions offer a rare chance to secure low-cost fixed mortgage deals and plan their finances with more certainty.
