UK interest rates have been cut to 4.25% from 4.5% and the governor of the Bank England has hinted more could follow in the coming months.
The reduction this May is the fourth cut within the past year and the Bank considered an even bigger cut to 4% due to concerns the global trade war could hit UK economic growth.
The average two-year fixed mortgage rate has dropped month-on-month by the biggest margin in over six months, the latest Moneyfacts UK Mortgage Trends Treasury Report data has revealed.
The average two-year fixed mortgage rate has fallen to its lowest point since the start of September 2022, before the ‘mini-Budget’. The availability of product choice grew further, and the average shelf-life of a deal fell.
Average mortgage rates on the overall two- and five-year fixed rates fell by 0.14% and 0.08%. The two-year fixed rate noted its biggest monthly fall since October 2024.
The average two- and five-year fixed rates were last lower in September 2022 (4.24%) and November 2024 (5.09%) respectively.
At the start of May 2024, the average five-year fixed rate was 5.48%; compared to the start of this month, the rate is 0.38% lower at 5.10%. However, the average two-year fixed rate has fallen by 0.73% over the same period, down from 5.91% to 5.18%.
“Substantial drops are unlikely unless the Bank of England base rate falls significantly to about 2.5%, which is not currently forecast. Borrowers should not wait for rates to collapse” (The Guardian)
Interest Rates and Mortgage Costs
Several major lenders, including Barclays, Nationwide, Lloyds, Halifax, HSBC, and Virgin Money, have lowered their mortgage rates.
Barclays plans to reduce its Standard Variable Rate (SVR) from 7.99% to 7.74% effective June 1. Borrowers with tracker mortgages are expected to save approximately £350 annually, while those on SVRs may see savings around £170 per year. (The Guardian)
Lending Activity and Market Trends
Brokers say homebuyers and those aiming to remortgage are now the beneficiaries of a mortgage price war, with lots of lenders cutting the cost of their new fixed-rate deals in recent weeks.
Nationwide is now offering some sub-4% first-time buyer fixed rates for the first time since September 2024, and on Thursday afternoon it announced fresh reductions for new and existing customers, with rates starting from 3.84%. Other big lenders that have trimmed rates on their new deals this week include Halifax, TSB and Virgin Money.
Nicholas Mendes, the mortgage technical manager at the broker John Charcol, said he expected fixed-rate mortgage to continue getting gradually cheaper throughout 2025. By the end of the year, “we could see leading two-year fixed rates settle at about 3.5%, with five-year fixes close behind at approximately 3.6%,” he says. However; “Substantial drops are unlikely unless the Bank of England base rate falls significantly to about 2.5%, which is not currently forecast. Borrowers should not wait for rates to collapse” (The Guardian)
Further comment
The mortgage market has shown signs of resilience. In the first quarter of 2025, gross mortgage advances increased by 4.9% from the previous quarter to £68.8 billion, the highest since Q4 2022. New mortgage commitments also rose by 4.9% to £69.3 billion, indicating sustained borrower interest. (Barclays Home)
UK Finance forecasts a 10% increase in residential house purchase lending in 2025, reaching £148 billion. Remortgaging activity is expected to grow by 30% to £76 billion, driven by more fixed-rate deals maturing and improving affordability. (UK Finance)