Mortgage rates to stay higher for longer amid high inflation
Homeowners are facing a new challenge as mortgage rates are set to remain elevated for an extended period, following confirmation from chancellor Rachel Reeves in her spring statement that inflation will average 3.2% this year.
The announcement is a significant revision from the Office for Budget Responsibility's (OBR) earlier forecast of 2.6%, and it has raised concerns that interest rates will now decrease more slowly.
The average rate for a two-year fixed mortgage stands at 5.19%, while five-year fixed deals average 5.31%, according to data from Uswitch.
The Bank of England held its interest rate at 4.5% this month, after warning that global economic uncertainty has "intensified".
This is the lowest level for rates in more than 18 months, following a reduction from 4.75% in February — the third such cut since August 2024.
The main inflation measure, the Consumer Price Index (CPI), stood at 2.8% in the 12 months to February 2025, a slight decrease from the previous month. While this marks a significant drop from the peak of 11.1% seen in October 2022, it remains well above the Bank of England's target of 2%.
Justin Moy, managing director at EHF Mortgages, told The i Paper: 'Those looking for a quick cut to mortgage rates will be disappointed by Wednesday's statement. With no additional support for homeowners, the mantra 'higher for longer' will rattle mortgage borrowers for the next few years.
'Confidence and stability still need to be proven by the government, the economy has a number of tax rises to swallow and if growth goes into reverse, that would be the trigger for deeper cuts to rates. But in the meantime, there isn't a lot of cheer for mortgage holders.'
Read more: Key takeaways from Rachel Reeves' spring statement
Critics were quick to respond, including shadow chancellor Mel Stride, who said: "Inflation, which was down to 2% bang on target on the very day of the last general election under a Conservative government. We are now told this year we'll be running at twice the level of the forecast under ourselves in 2024. This is going to mean prices bearing down on households and on businesses, right across the country, because of her choices."
The spring statement also provided little relief for the housing market, with no new measures introduced to support buyers. There was no extension of the stamp duty concession, which is set to expire this week, and no new mortgage schemes for first-time buyers.
Mark Harris, chief executive of mortgage broker SPF Private Clients: 'The spring statement was underwhelming as far as the housing market is concerned.
'The chancellor missed an opportunity to boost all-important transactions by extending the stamp duty concession or introducing some discount for downsizers.
"She also did nothing for first-time buyers, with no incentives or assistance to get them on the housing ladder — a significant shame as first-time buyers are the lifeblood of the market and enable existing homeowners to move up the ladder."
Read more: UK house price growth slows ahead of stamp duty changes
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: 'Our first wish was granted — the chancellor didn't do much, if anything, to deter existing activity in the housing market.
'It also seems a little unfair on those who have moved heaven and earth to take advantage of the stamp duty concession before it disappears but who may not make it, through no fault of their own. The deadline could perhaps have been extended for those transactions in solicitors' hands from the beginning of February as a small respite.
"Looking forward, a broader review into the impact of stamp duty on the market and making it less of a deterrent, particularly at the first-time buyer end, would have been welcome.'
This week, there were no major cuts to rates as lenders took a wait and see approach amid the spring statement.
HSBC (HSBA.L) has a 4.07% rate for a five-year deal. This is unchanged from the previous week. For those who have a Premier Standard account with the lender, this rate comes in at 3.98%.
Looking at the two-year options, the lowest rate stands at 4.12% with a £999 fee, again unchanged from the previous week.
Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.39% or 5.08% for a five-year fix.
This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
NatWest (NWG.L) has a five-year deal coming in at 4.12% with a £1,495 fee, which is unchanged from the previous week.
For a two-year fix, the cheapest deal comes in at 4.15%, also unchanged. In both cases, you'll need at least a 40% deposit to qualify for the rates.
At Santander (BNC.L), a five-year fix comes in at 4.10%, unchanged from the previous week, with a £999 fee, assuming you have a 40% deposit.
For a two-year deal, customers can also secure a 4.15% offer, with the same £999 fee, which is also untouched.
Read more: How to protect over £370,000 in savings from tax
In addition to maintaining its current rate offerings, Santander has expanded its product range to support first-time buyers. The bank has introduced new fixed-rate deals for first-time buyers with loan-to-value (LTV) ratios ranging from 60% to 95%. These include options for two-, three-,five- and 10-year terms, as well as a two-year tracker mortgage. Notably, these new deals come with flexible product fees — either £999 or £0 — depending on the option chosen.
Santander has also introduced new mortgage products tailored to first-time buyers with large loans, featuring two- and five-year fixed-rate deals at 60% LTV, albeit with a higher £1,999 product fee.
Additionally, the bank is catering to first-time buyers purchasing new-build properties with the launch of new range of 60% to 95% LTV three-year fixed deals. Options available with a £999 or £0 product fee.
A five-year fix at Barclays (BARC.L) comes in at 4.06%, which is untouched from the previous week. For "premier" clients this rate drops to 3.99%.
When it comes to two-year mortgage deals, the lowest you can get is 4.11%, also unchanged from last week's deal.
Barclays has also launched a new mortgage proposition designed to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed towards a property, without needing to lend or gift money directly or provide a larger deposit.
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Under the new scheme, a borrower's eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.
However, with Mortgage Boost, if a second person — such as a parent — joins the application, the total borrowing potential can rise substantially. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide (NBS.L) is offering a five-year fix at 4.34%, which comes with a £999 fee and requires a 40% deposit. This is unchanged from last week.
Nationwide offers a two-year fixed rate for home purchase at 4.34% with a £999 fee — also for borrowers with a 40% deposit. Again, unchanged from the previous week.
Halifax, the UK's biggest mortgage lender, offers a five-year rate for 4.17% (also 60% LTV), which is higher than last week's 4.12%.
The lender, owned by Lloyds (LLOY.L), has a two-year fixed rate deal coming in at 4.06%, with a £999 fee for first-time buyers, which is lower than the previous 4.15%.
Read more: How to negotiate house prices
It also offers a 10-year deal with a mortgage rate of 4.78%.
The lender has announced the launch of a new 1.5-year fixed-rate remortgage product in response to growing demand among borrowers for shorter-term deals.
Shorter-term fixes offer certainty over monthly payments while also allowing households to switch to a new deal sooner to capitalise on lower rates.
With sub-4% mortgages basically off the market unless you're a premium client, prospective homeowners do not have a lot of reasons to smile when it comes to finding a good deal.
Barclays currently has the cheapest deal on the market for a five-year fix, and Halifax has the cheapest for a two-year deal, both at 4.06%. However, they both require a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal.
Given the average UK house price sits at £366,189, a 40% deposit equates to about £147,000.
A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Read more: UK house prices climb £10,431 amid demand for bigger homes
Lender April Mortgages is offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.
The company, which is part of an independent Dutch asset manager DMFCO, has interest rates starting at 5.20%, with an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income, in an effort to support more borrowers on to the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings, with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies.
With 1.8 million fixed mortgage deals set to end in 2025, according to UK Finance, many homeowners will be hoping the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely be rooting for rates to remain at or near their current levels.
Read more:
10 home upgrades that don't need planning permission
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