The lowest fixed rate mortgage deals remain at around 4 per cent – and there is an expectation that rates may fall slightly further but not by much.
The mortgage market is stuck in a holding pattern as we wait for more direction on where base rate may be headed, with sticky inflation bumping up rate expectations but a slowing economy and global concerns nudging them down.
Fixed rate mortgages pricing is most heavily influenced by where money markets expect interest rates to head in the future.
After holding the base rate in June, the Bank of England is currently expected to cut interest rates a further one or two times this year.
For the vast majority of households, a mortgage rate of between 4 and 5 per cent will be achievable depending on the level of equity or size of deposit.
While 4 per cent or slightly lower rates are for those with biggest deposits or levels or equity in their home, even those with a 10 per cent deposit can get to around 4.5 per cent.
Mortgage rates: what is happening
The Bank of England held base rate at 4.25 per cent on 19 June. Base rate has dropped by 1 percentage points since August when it was first cut from 5.25 per cent.
It’s fair to say the mortgage market is somewhat more settled now.
In 2023, a combination of base rate hikes and worries over inflation figures saw average two-year fixed mortgage rates reach a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates hit 6.35 per cent.
However, mortgage rates still remain far higher than borrowers had enjoyed prior to the surge in 2022.
Little more than three years ago, the averages were hovering around 2.5 per cent for a five-year fix and 2.25 per cent for a two-year.
In fact, as recently as October 2021, some of the lowest mortgage rates were under 1 per cent.
Will mortgage rates go down or up?
Mortgage rates have been drifiting upwards over the past couple of weeks as lenders re-price due to changes in sonia swap rates.
However, this is likely to stop and even reverse over the coming weeks as swaps have been falling this month.
The lowest fixed rate mortgages are currently just below 4 per cent and most borrowers will find they will be able to secure a rate of between 4 and 5 per cent depending on their deposit or level of equity.
The current expectation is that the Bank of England will cut interest rates one or two times more in 2025. They are predicted to end the year at 3.75 per cent.
This expectation has fed through into Sonia swaps, an inter-bank lending rate which forecasts where mortgage rates will be in two or five years. Lenders use this to determine fixed-rate mortgage pricing.
As of 12 June, two-year swaps are at 3.65 per cent and five-year swaps were at 3.67 per cent.
These will need to fall further for fixed rate mortgages to see any further dramatic falls.
Inflation and mortgage rates spike
Mortgage rates first began to increase towards the end of 2021, when inflation started to rise, resulting in the Bank of England increasing base rate to try and combat it.
The aftermath of the Covid lockdowns, combined with Russia’s invasion of Ukraine in February 2022, triggered a huge inflation spike. Central banks were caught on the hop and rushed to try to rein this in with higher interest rates.
Mortgage pricing: a rough guide
Mortgage market expectations are reflected in something known as Sonia swap rates.
These are agreements in which two counterparties, for example banks, agree to exchange a stream of future fixed interest payments for a stream of future variable payments.
Mortgage lenders enter into these agreements to shield themselves against the interest rate risk involved with lending fixed rate mortgages over a period of time.
For example, if a bank lends a mortgage fixed for five years, it wants to have some certainty on what it will cost to fund that over the time period, rather than being dependent on shifting interest rates and potentially being caught out by big unexpected moves.
Put simply, swap rates show what financial institutions think the future holds concerning interest rates.
Mortgage rates accelerated after the Liz Truss-Kwasi Kwarteng mini-Budget in late September 2022, with its wave of unfunded tax cuts that unsettled bond markets.
After Truss resigned in October 2022, new Chancellor Jeremy Hunt reversed nearly all of the mini-Budget announcements. The markets calmed down and the cost of borrowing fell with mortgage rates dropping too.
But following a fresh round of stubbornly high inflation figures in late spring 2023, markets began betting the base rate would peak at 6.5 per cent.This triggered a summer inflation panic and led to mortgage lenders whacking their rates up again.
Once the inflation worries subsided, interest rate expectations eased substantially but inflation proved stickier than expected in 2024 and the Bank of England ended up holding base rate at 5.25 per cent.
With inflation finally returning to its 2 per cent target, the Bank finally felt comfortable cutting rates to 5 per cent at its August 2024 meeting and then again in its November meeting.
Having held rates in December, it cut again in February and then again in May.
The Consumer Prices Index rose by 3.5 per cent in the 12 months to April 2025, according to the ONS, up from 2.6 per cent in the 12 months to March.
Higher than expected inflation could lead to MPC members refraining from rate cuts.
The central bank expects inflation to stay temporarily above its 2 per cent target but fall back to target over the coming 12 months.
Most economists and personal finance experts think the Bank of England will proceed cautiously from here. The next decision is on 8 May.
Should you fix for two or five years?
Britons face a tough choice over whether to fix their mortgage for two or five years.
In terms of rates there is barely any difference between them at present.
The average five-year fix at 5.1 per cent and the average two-year fix at 5.13 per cent, according to Moneyfacts.
Not so long ago, there was a clear preference among borrowers for five-year fixed rates – but that now looks to be changing with borrowers split almost fifty-fifty in what they went for last year, according to UK Finance data.
Choosing what length to fix for depends on what you think may happen to interest rates but should importantly take more account of what your personal circumstances are.
Key factors include whether you may move soon, how much you prefer the security of fixed payments for longer and how well you could cope with a rise in mortgage bills.
Fixed rates of any length offer borrowers certainty over what their payments will be from month-to-month.
Those opting for a shorter two-year fix are backing interest rates falling over the next couple of years, or at least staying steady, so that when it is time to remortgage their bills won’t rise.
With five-year fixes borrowers are locking in to rates that they know won’t change for longer, perhaps either because they believe rates may rise or because they prefer the security. Five-year fixes were hugely popular when rates were lower.
If rates continue to fall, a tracker mortgage without an early repayment charge could put borrowers in a position to take advantage.
However, for all the potential benefit, a tracker product will also leave people vulnerable to further base rate hikes, while also being more expensive than fixed rates at present.
Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.
What are the best mortgage rates?
We have taken a look at the best deals on the market based on a 25-year mortgage for a £290,000 property – the current UK average house price according to the ONS.
To check up-to-the minute rates based on your own circumstances, use This is Money’s mortgage finder service and best buy tables.
Please bear in mind that the mortgage deals listed below are for those those buying and moving home, The rates for first-time buyers and those remortgaging may be slightly different.
Landlords looking to find out the best mortgage rates for buy-to-let can check here.
The mortgage deals below are best in terms of having the lowest rate. They may not be the cheapest deal overall when arrangement fees are also factored in.
Bigger deposit mortgages
Five-year fixed rate mortgages
Barclays has a five-year fixed rate at 3.99 per cent with a £899 fee at 60 per cent loan to value.
NatWest has a five-year fixed rate at 3.99 per cent with £1,495 fees at 60 per cent loan to value.
Two-year fixed rate mortgages
Santander has a 3.95 per cent two-year fixed rate deal with an £999 fee at 60 per cent loan-to-value.
Nationwide has a two-year fixed rate at 3.95 per cent with a £999 fee at 60 per cent loan to value.
Mid-range deposit mortgages
Five-year fixed rate mortgages
NatWest has a five-year fixed rate at 4.1 per cent with a £1,495 fee at 75 per cent loan to value.
Santander has a five-year fixed rate at 4.14 per cent with a £999 fee at 75 per cent loan to value.
Two-year fixed rate mortgages
Yorkshire Building Society has a two-year fixed rate at 4.02 per cent with a £1,495 fee at 75 per cent loan to value.
Santander has a two-year fixed rate at 4.03 per cent with a £999 fee at 75 per cent loan-to-value.
Low-deposit mortgages
Five-year fixed rate mortgages
Santander has a five-year fixed rate at 4.44 per cent with £749 fees at 90 per cent loan to value.
Nationwide has a five-year fixed rate at 4.45 per cent with £999 fees at 90 per cent loan to value.
Two-year fixed rate mortgages
West Brom Building Society has a two-year fixed rate at 4.5 per cent with £999 fees at 90 per cent loan to value.
Halifax has a two-year fixed rate at 4.53 per cent with a £1,099 fee at 90 per cent loan to value.
Tracker and discount rate mortgages
The big advantage to a tracker mortgage is flexibility. The downside is they are currently more expensive, so it will take a few more interest rate cuts before borrowers starting beating the fixed rate deals.
The can sometimes be the case with discount rate mortgages, which track a certain level below the lenders’ standard variable rate.
A fixed-rate mortgage will almost inevitably carry early repayment charges, meaning you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up.
You should be able to take a fixed mortgage with you if you move, as most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.
Many tracker deals have no early repayment charges, which means you can up sticks whenever you want – and that suits some people.
Make sure you stress test yourself against a sharper rise in base rate than is forecast.
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
