Average mortgage rates below 5% for first time since Truss budget
The average two-year fixed mortgage rate has dropped below 5% for the first time since the turmoil caused by former Prime Minister Liz Truss's mini-budget in September 2022.
According to the financial information company Moneyfacts, the rate has fallen to 4.99%. It described the move as a “symbolic turning point” for homebuyers and a sign that lenders are competing “more aggressively.”
The Bank of England has cut its base interest rate five times since last August, although a split vote among policymakers at the last meeting has raised doubts about further cuts this year. While mortgage rates are following the “mood music” set by the Bank, many homeowners still face significant increases in their monthly payments.
Remortgaging Reality 🏠
Hundreds of thousands of borrowers are set to remortgage this year. According to UK Finance, the banking industry body, 900,000 fixed-rate deals are due to end in the second half of 2025 alone, out of a total of 1.6 million for the whole year.
Moneyfacts noted that current mortgage rates are still “well above” the rock-bottom rates seen in the years immediately preceding the mini-budget.
The so-called mini-budget, unveiled by Truss's short-lived chancellor Kwasi Kwarteng, included £45 billion of unfunded tax cuts that caused chaos in UK markets. It drove up the cost of UK government borrowing, which subsequently fed through into higher mortgage rates. By July 2023, mortgage costs had risen to their highest level since the 2008 financial crisis. Rates were already rising as central banks, including the Bank of England, grappled with high inflation, which was exacerbated by the energy price shock following Russia's invasion of Ukraine.
Economic Outlook
Last week, the Bank of England revealed that inflation is expected to be higher than anticipated this year, hitting 4% in September before falling back to its 2% target in 2027.
“This is likely to mean that the base rate will remain at its current 4% level for longer,” a spokesperson for Moneyfacts said.
Meanwhile, mortgage lender Halifax reported last week that average house prices rose by more than £1,000 in July to £298,237.
Amanda Bryden, Halifax's head of mortgages, said that with mortgage rates falling from their peaks and wages increasing, the picture on affordability is gradually improving.
“The result is a housing market that continues to show resilience, with activity levels remaining stable,” she said. “We expect house prices to continue on a modest upward path throughout the year.”
