Mortgage rates dropped in the second half of 2023, as the inflation rate plummeted and the Bank of England responded by keeping the base interest rate level. 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. Rates rose a little in February to finish the month at 5.75% on average, according to Moneyfacts, and have remained close to that level since then.
That’s a significant fall from the July peak of 6.86%. But it still remains a lot higher than December 2021 when it stood at 2.34%.
Laura Suter, director of personal finance at AJ Bell, said: “While interest rates have been held for another month, savers and mortgage holders have seen anything but steady interest rates. The rates on offer to savers have been bouncing around for months. At the same time mortgage rates have been on a rollercoaster ride so far this year.”
This article covers:
- Why did mortgage rates rise in February?
- Why have mortgage rates gone down since the summer?
- Will UK mortgage rates go down more?
- What are the latest UK mortgage rates?
- How have mortgage rates changed?
Read more: Can’t pay your mortgage? Here’s what you can do
Why did mortgage rates rise in February?
At the start of January, major 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 mortgage were slashed by up to approximately 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 since climbed to 5.76%, from approximately 5.4% in January. This comes after the inflation rate remained level in January, at 4%. While it has fallen a long way since a year ago, when it was 10.4%, it has hovered around its current level since October. This has prompted analysts to revise their forecasts that the Bank of England will be slashed in the near future.
“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.
“This has forced fixed rates back up as funding costs have risen. That may catch some borrowers by surprise when the story this year has generally been one of falling rates. In the short term we may still see more movement in mortgage rates.
“Of course, there remains an expectation for base rate to be cut this year, but the question mark remains over when that may come. We may well see market rates bobble around as new data is revealed, but for now at least, anyone that was holding off in the hope of further cuts may want to reassess their position.”
Read more: The best mortgage rates today
Why have mortgage rates gone down since the 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 mortgage products accordingly.
With the Bank of England deciding to hold the base interest rate at 5.25% for the fifth meeting in a row in March, it is likely that mortgage lenders had priced in the possibility of this decision.
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.
Read more: Five things to consider doing now if you’re fixed-rate mortgage is coming to an end
Will mortgage rates go down more?
Most experts believe mortgage rates are due to go down, they’re just not sure quite when.
While inflation has dropped during the past year, it remains too high for the Bank of England. This means that the Bank of England may not start slashing interest rates just yet.
Nonetheless, experts generally believe that interest rates have peaked, after the Bank of England decided to pause its hikes in September and has held rates steady at 5.25% since then. Find out more about when interest rates could go down.
Stephen Gomez, specialist mortgage adviser at Wesleyan Financial Services, said: “Another ‘hold’ decision is unlikely to lead to any drastic changes in the mortgage market. However, taken together with yesterday’s data confirming that inflation is slowing, it may help soften some of its current volatility – we’re still seeing some lenders increasing rates.
“The Bank of England is expected to start cutting rates sometime in the coming months. But for now, people remortgaging and borrowing for the first time will almost inevitably have to accept higher rates than they could get two or five years ago. It’s really important that they time to review all possible deals to make sure that whatever they’re going for is the best option for their specific circ*mstances.”
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.
What are the latest UK mortgage rates?
On 21 March, the average mortgage rates according to Moneyfacts are:
- Two-year fixed deal now stands at 5.76%
- Five-year fixed deal now stands at 5.34%
- 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 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 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 5.75%, 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 ↑ |
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 circ*mstances.
Here are other factors to consider:
- The bigger your deposit the lower your mortgage rate (generally)
- Five-year mortgage deals 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
Find mortgage deals with our best buy tool
Times Money Mentor has teamed up with Koodoo Mortgage to create a mortgage comparison tool. You can use it to benchmark the deals you can get — but if you want advice, it might be best to speak to a mortgage broker.
This is how the tool works:
- You can search and compare mortgage deals
- It only takes a couple of minutes and no personal details are required to search
- Once you’ve got your result, you can speak to a mortgage broker if you need advice
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