Mortgage rates dropped in the second half of 2023, as inflation plummeted and the Bank of England stopped hiking base rate. However, mortgage rates have been volatile since then, despite falls in inflation.
Mortgage rates climbed quickly during summer of 2023, with the average two-year fixed rate reaching 6.86% in July. However, they slumped in the following months as inflation slowed.
Since then it’s been a choppy ride – despite falling inflation and a constant Bank of England base rate of 5.25%.
But with the Bank of England now predicted to cut interest rates before the end of summer, and some lenders dropping fixed-rate mortgages in response, is it time for mortgages to get cheaper again?
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The fall in inflation could keep fixed mortgage rates moving in the right direction, as banks price in an interest rate cut in June or August.”
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Why did mortgage rates rise in February?
At the start of January, big lenders including HSBC, Co-operative Bank and Virgin Money began aggressively cutting interest rates in order to attract new borrowers and compete in a crowded market. Fixed mortgages were slashed by up to one percentage point. At one point, there were fixed mortgage rates on offer below 4%.
However, the average two-year fixed rate mortgage rate has climbed to 5.91% at the start of May, from approximately 5.4% in January.
“Lenders are shifting rates regularly to adjust to the fact that markets now anticipate that base rate may take longer to fall than had previously been hoped,” explained David Hollingworth, a mortgage broker at L&C Mortgages.
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Why have mortgage rates gone down since last summer?
Mortgage rates rose sharply during 2022 and the first half of 2023, in response to the Bank of England hiking the base rate of interest from 0.1% to 5.25% in a bid to tackle soaring inflation. You can find out more about how interest rates affect inflation.
However, inflation has fallen in the UK significantly over the past year, which has given banks and building societies more confidence to lend money to borrowers at a cheaper price.
Lenders pre-empt base rate moves by the Bank of England by increasing or decreasing the price of their fixed-rate mortgage products accordingly.
With the Bank of England looking like it might start cutting interest rates in the summer, it is likely that mortgage lenders had priced in the possibility of this decision.
Several major lenders cut fixed-rate deals in May, in anticipation of a lower Bank of England base rate coming soon,
Banks are also aware that high mortgage rates have put people off taking out mortgages. The number of people struggling to meet their repayments has also risen. While house prices are falling, they are still £40,000 above pre-pandemic levels on average. For banks to continue to attract customers, they know that they’ll need to make cuts to mortgage rates.
When a few high-street banks led the charge and started to slash mortgage rates in January, other lenders rushed to cut theirs, in order to compete in a crowded market. This means average mortgage rates could soon fall to their lowest point since September 2022.
Will mortgage rates go down more?
Most experts believe mortgage rates are due to go down further, they’re just not sure quite when.
If inflation continues to fall as it did throughout 2023, industry insiders are optimistic that average mortgage rates could fall below 5% again in 2024.
Sarah Coles from Hargreaves Lansdown said: “We can’t expect seismic shifts, but there’s likely to be some movement in the direction of 5%, as the market adjusts. It’s also a relief for anyone who shifted to a variable rate deal, many who would have been expecting a spring cut at the point when they made the decision.”
What are the latest UK mortgage rates?
On March 21, the average mortgage rates according to Moneyfacts were:
- Two-year fixed deal now stands at 5.91%
- Five-year fixed deal now stands at 5.48%
- Standard variable rate (SVR) is 8.18%
Work out how much you can overpay on your mortgage with this free tool
How have UK mortgage rates changed?
During summer of last year, average mortgage rates jumped to their highest level since August 2008, during the financial crash. The average two-year fixed rate back then was 6.94%.
In the years that followed the 2008 crash, the economy stabilised, and interest rates dropped like a stone. In December 2021, the average two-year fixed mortgage rate was 2.34%. Many deals were much cheaper than this. Some lenders were offering rates below 1% for those who had a large amount of equity in their homes or buyers with a sizeable deposit.
However, after inflation soared and the Bank of England started raising interest rates, mortgage rates followed suit. After inflation fell significantly during 2023, they fell somewhat. February 2024 saw them inch upwards again, as the inflation rate hadn’t fallen in several months.
The current average five-year rate is now 5.48%, compared to 2.64% in December 2021.
You can see how mortgage rates have changed since June in the table below:
| Date | Average 2-year fixed rate | Average 5-year fixed rate |
| 16/06/2023 | 5.98% | 5.62% |
| 23/06/2023 | 6.19% ↑ | 5.83% ↑ |
| 30/06/2023 | 6.39% ↑ | 5.96% ↑ |
| 07/07/2023 | 6.54% ↑ | 6.04% ↑ |
| 14/07/2023 | 6.78% ↑ | 6.30% ↑ |
| 19/07/2023 | 6.81% ↑ | 6.33% ↑ |
| 20/07/2023 | 6.79% ↓ | 6.31% ↓ |
| 26/07/2023 | 6.86% ↑ | 6.36% ↑ |
| 28/07/2023 | 6.81% ↓ | 6.34% ↓ |
| 01/08/2023 | 6.85% ↑ | 6.37% ↑ |
| 07/08/2023 | 6.84% ↓ | 6.35% ↓ |
| 17/08/2023 | 6.76% ↓ | 6.25% ↓ |
| 05/09/2023 | 6.67% ↓ | 6.17% ↓ |
| 13/09/2023 | 6.62% ↓ | 6.11% ↓ |
| 19/09/2023 | 6.66% ↑ | 6.08% ↓ |
| 28/09/2023 | 6.48% ↓ | 5.98% ↓ |
| 16/10/2023 | 6.36% ↓ | 5.91% ↓ |
| 9/11/2023 | 6.21% ↓ | 5.80% ↓ |
| 23/12/2023 | 5.95% ↓ | 5.57% ↓ |
| 22/1/2024 | 5.59% ↓ | 5.22% ↓ |
| 29/2/2024 | 5.75% ↑ | 5.33% ↑ |
| 15/4/2024 | 5.80% ↑ | 5.39% ↑ |
| 14/5/2024 | 5.91% ↑ | 5.48% ↑ |
Looking for a mortgage? Use this free mortgage tool to see some of the best deals
Who can potentially get a cheap mortgage?
The cheapest deals tend to be targeted at existing homeowners looking to move or remortgage, and those with a lot of equity or a big deposit – usually around 40% of the property’s value.
An independent mortgage broker could help you find the cheapest deals on the market for your financial circumstances.
Here are other factors to consider:
- The bigger your deposit the lower your mortgage rate (generally)
- Five-year mortgage deals currently tend to have lower rates than shorter term deals
- Some deals are only available to borrowers in England and Wales
- Your credit score must be in top condition to secure a good deal
You might want to read: Is now a good time to remortgage?
What is likely to be the cheapest mortgage for first-time buyers?
First-time buyers often have smaller deposits of between 5% and 10% of the value of the home.
A small deposit might mean you are more limited in the number of deals available to you. If you do find a suitable deal, the interest rates are likely to be higher than if you had a bigger deposit because lenders will see you as riskier.
We outline the pros and cons of small deposit mortgages.
You also need to consider any mortgage fees attached to the product. Some deals charge upfront fees or exit charges, while others don’t.
It is often the case that headline-grabbing low mortgage rates also come with the highest fees, which can make a big difference to the overall amount you pay for your home.
Be aware: it is not guaranteed you will qualify for an advertised mortgage deal. Lenders often have strict criteria for who is eligible.
To find the best mortgage deal for you, check out our mortgage comparison tool*. This gives the best options whether you are a first-time buyer, home mover, buy-to-let landlord or looking to remortgage.
If you are looking for help to get on the property ladder, check out our guide for first-time buyers.
Is it worth speaking to a mortgage broker?
It can be worth speaking to a mortgage broker as they will have access to a range of deals across the market.
Bear in mind that some banks reserve special deals for their existing customers, which may not be available to brokers. So you might want to speak to your bank or existing lender.
The good news is that you might be able to secure a cheaper mortgage once you have built up more equity in your home.
Looking for a broker? We list the best mortgage brokers
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