Mortgage prices are falling – should you fix?
More than 760,000 homeowners' fixed-rate deals are due to come to an end this year. And many of those will be braced for crippling rises of up to £300 a month when they come off loans with interest rates as low as 1 per cent.
However, lenders are slashing rates this summer as they compete for business in a 'buyer's market', with a record number of properties for sale. This slowdown in the housing market has caused banks to focus on deals for those who are remortgaging.
Figures released by the Bank of England this week showed that the 41,800 remortgages approved last month was the most since October 2022, just after Liz Truss's disastrous mini-budget, which sent mortgage rates soaring.
On Wednesday the building society Nationwide became the latest lender to cut rates, slashing fixed deals by up to 0.21 percentage points. Shaun Sturgess, a mortgage broker based in Swansea, said: 'For many this is the first window of opportunity in over two years to secure a competitive fixed rate below 4 per cent.'
The Bank of England is also expected to cut its base rate to 4 per cent on Thursday after weak growth and a rise in unemployment. This would drive down mortgage costs for the millions of borrowers with tracker or variable-rate deals.
The lowest five-year fixed rate available at up to 60 per cent loan-to-value has been cut from 3.96 per cent at the start of May to 3.86 per cent on Thursday from HSBC, while the lowest five-year fix for someone buying a home has stayed the same at 3.88 per cent, available from NatWest.
The lowest two-year fix is 3.8 per cent from Santander for someone remortgaging, down from 3.96 per cent at the start of May. While the lowest two-year fix for a buyer is lower, at 3.73 per cent from the same lender, it has been cut by slightly less — down from 3.88 per cent.
Some 222,480 homeowners took out five-year fixes between the start of August and the end of December 2020, according to the trade association UK Finance, when the Bank of England base rate was at an all-time low of 0.1 per cent (it is now 4.25 per cent) and fixed mortgage rates could be had for well below 2 per cent.
Many took advantage of low pandemic-era interest rates to move to bigger homes, or remortgaged to make home improvements. Between January and August 2020 the average mortgage amount rose from £174,671 to £193,992.
Rates then soared after the Bank of England increased the base rate 14 times between December 2021 and August 2023, to a peak of 5.25 per cent, in a bid to tame high inflation. The average mortgage rate hit a peak of 5.74 per cent in July 2023, according to the Bank of England.
Five years ago the lowest rate was 1.4 per cent. Someone with a £200,000 25-year mortgage would pay £791 a month, which would rise to £1,056 at a rate of 4 per cent. At a rate of 3.8 per cent, repayments would be slightly lower at £1,034 a month — £264 less a year.
Peter Gettins from the broker L&C said: 'Whether you call it a rate war or rate skirmish, banks are keen to compete for your business and are pricing as aggressively as they possibly can. That can only be good news for anyone looking to remortgage or buy.'
Borrowers could opt for a tracker deal with a rate that rises and falls in line with the Bank rate. Nationwide's tracker is 0.19 percentage points above Bank rate for two years with no early repayment charge.
The mortgage broker Adrian Anderson expects the price war to continue. He said: 'A lot of the banks are fighting for market share. Many will be behind their annual targets because purchase transactions are down, so they will want to try and entice people to take a mortgage with them and increase their loan book.'
Aneisha Beveridge from the estate agency Hamptons believes that more competitive rates are increasing affordability for buyers, which will drive house price growth. She said: 'After a sluggish 2024 we expect average house prices across Great Britain to rise 3 per cent year-on-year in the last quarter of 2025, reaching about £277,000.'
The average detached house sold for £441,439 in May, according to the Land Registry. A 3 per cent rise in prices would take it to £454,682.
• Will you bag a 3% interest rate in the summer mortgage sale?
Beveridge added: 'Falling mortgage rates, weakening inflation and rising wages have all helped to ease pressure on household budgets.'
Historically, dramatic falls in the Bank's base rate have helped to fuel house price booms, with the 2008 financial crisis and the coronavirus pandemic leading to spikes. The base rate is expected to fall to at least 3.75 per cent before the end of the year.
Beveridge said: 'Much of this is already priced in. However, competitive lending — especially for higher loan-to-value products where lending requirements have loosened — should support first-time buyers and second-steppers.'
Latest figures from the property website Rightmove put the average rate for a two-year fix at 4.52 per cent, which is 0.74 percentage points lower than the same time last year. The average five-year fix is 4.51 per cent, down 0.36 percentage points compared with June 2024.
House prices could also be boosted by high street banks easing the 'stress tests' that are used to make sure borrowers can still afford repayments if their mortgage rate rose.
Forecasts by the analyst Oxford Economics predict that the average two-year fixed-rate mortgage with a loan-to-value of 75 per cent could drop from June's 4.32 per cent figure to 4.17 per cent by the end of the year. By July next year it expects this to fall to 4.02 per cent.
These falls will support house price growth, with Oxford Economics expecting house prices to hit 3.6 per cent year-on-year growth in the third quarter of the year, and then 2.5 per cent in the final quarter.
Edward Allenby from Oxford Economics said: 'We expect house prices to grow, but that growth is expected to soften over the next year. That is because household income growth is likely to slow, whether that is through higher inflation, tighter fiscal policy, frozen thresholds and potentially higher taxes.'
In the first quarter of 2025 year-on-year house price growth was 5.5 per cent.
An oversupply of homes could also cause price growth to slow. Zoopla reported this week that there were about 553,000 homes up for sale, a record high.
• House price boom? Inflation means all is not as it seems
Richard Donnell from Zoopla said: 'Price growth is being stunted by the high supply of homes for sale, with 12 per cent more properties on the market than this time last year.
'This supports a 'buyers' market' where there's plenty of choice and offers can be competitive, limiting house price increases.'
For homeowners coming to the end of their mortgage term, it looks like a good time to shop around, with significant rate drops for those who want to switch lenders.
Gettins said: 'In the last 6 to 12 months the gaps between rates for first-time buyers and those remortgaging have narrowed. Banks are becoming more competitive for those remortgaging as they are for movers, and that's a positive sign for anyone whose deal is maturing.'
Analysis by L&C has found that the lowest remortgage rate for a two-year fix is 3.79 per cent, a fall of 0.17 percentage points since the start of May. This has nearly matched the rate for buyers, with the lowest two-year fixed mortgage rate at 3.76 per cent, which is 0.22 percentage points lower than the May equivalent.
Experts have said that the high number of people remortgaging is driven by the better rates but also a 'perfect storm' of people coming off their two and five-year mortgages at the same time.
Chris Sykes from the mortgage broker MSP Financial Solutions said: 'There have been a series of events that have led to a big remortgage year.
'You probably fixed at five years in Covid before rates rose, and then those getting mortgages two years ago when rates went really high after the Truss budget would have fixed for two years hoping rates would come down.'
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