Prices have risen consecutively for the past four months. December saw a 0.7 per cent per cent monthly rise, after taking account of seasonal effects, following a 1.2 per cent increase in November.
Mortgage rates accelerated after the Liz Truss-Kwasi Kwarteng mini-Budget in late September 2022. The pound tumbled after Kwarteng, announced a wave of unfunded tax cuts that unsettled bond markets.
Nonetheless, mortgage rates remain well below their recent peak.
Choosing what length to fix for depends on what you think may happen to interest rates but should importantly take more account of what your personal circumstances are.
Quick mortgage finder links with This is Money’s partner L&C
That said, mortgage rates still remain far higher than borrowers had enjoyed prior to the surge in 2022.
With inflation finally returning to its 2 per cent target, the Bank finally felt comfortable cutting rates to 5 per cent at its August 2024 meeting.
Five-year fixed rate mortgages
Five-year deals lock you in for longer and come with slightly cheaper rates and no need to remortgage in a relatively short space of time. However, this could count against you if rates begin to fall in the meantime.
How to compare mortgage costs
The price at which stamp duty starts to be charged will revert back to £300,000 for first-time buyers, from its current level of £425,000.
Mortgage 1
Mortgage 2
Cost over deal period including fees
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Less than three years ago, the averages were hovering around 2.5 per cent for a five-year fix and 2.25 per cent for a two-year.
The potential savings from doing so could add up to thousands of pounds a year.
Base rate was cut again to 4.75 per cent by a vote of 8 to 1 at the November Monetary Policy Committee meeting.
Between the start of July and October, the lowest five-year fixed rate mortgage fell from 4.28 per cent to 3.68 per cent. Meanwhile, the lowest two-year fix fell from 4.68 per cent to 3.84 per cent.
Be aware that rates can change quickly, however, and so if you need a mortgage or want to compare rates, speak to L&C as soon as possible, so they can help you find the right mortgage for you.
MPowered Mortgages has a two-year fixed rate at 4.36 per cent with a £999 fee at 75 per cent loan to value.
In fact, as recently as October 2021, some of the lowest mortgage rates were under 1 per cent.
This is Money has a long-standing partnership with fee-free broker L&C, to provide you with fee-free expert mortgage advice.
Most mortgage deals allow fees to be added to the loan and only be charged when it is taken out. This means borrowers can secure a rate without paying expensive arrangement fees.
Mid-range deposit mortgages
However, Nationwide says prices remain just below the all-time high recorded in summer 2022, before mortgage rates spiked.
Mortgage borrowers on fixed rate deals should worry less about where the base rate is today, and more about where markets think it will go in the future.
> Find the right mortgage for you
Make sure you stress test yourself against a sharper rise in base rate than is forecast.
Mortgages – a quick guide
To get the full choice of deals raising a decent deposit is still vital. The benchmark figure is 25 per cent, if you have this then you’ll be getting close to the best rates, although for an absolute cheapest deal you’re still likely to need 40 per cent.
‘This reflects strong demand as buyers moved quickly to secure deals ahead of the April 2025 stamp duty threshold changes, driving growth both monthly and annually.’
The recent spike in prices is linked to buyers trying to beat the stamp duty changes taking effect from 1 April this year.
Oxford Economics is predicting that base rate will eventually fall to 2.5 per cent in 2027 where it will broadly remain throughout 2028 and 2029.
If you’re ready to find your next mortgage, why not use L&C’s online Mortgage Finder. It will search 1,000’s of deals from more than 90 different lenders to discover the best deal for you.
For a full rate check use This is Money’s mortgage finder service and best buy tables. These are supplied by our independent broker partner London & Country.
Those opting for a shorter two-year fix are backing interest rates falling over the next couple of years, or at least staying steady, so that when it is time to remortgage their bills won’t rise.
This highlights quite how much interest rate expectations can shift around and how unreliable forecasts can be.
The Bank of England opted to hold the base rate at its current level in December, meaning interest rates finished the year at 4.75 per cent. They have slid 0.5 percentage points since August when they were first cut from 5.25 per cent.
This is also a lot lower than it was during the summer of 2023 when five-year swaps were above 5 per cent and two-year swaps were coming in at around 6 per cent.
Mortgage rates appear to be edging lower once again, but the best rates remain above 4 per cent for the time being.
Markets are now predicting the central bank will cut rates three times next year to 4 per cent by the end of 2025.
NatWest has a five-year fixed rate at 4.21 per cent with a £1,495 fee at 75 per cent loan to value.
Last year, forecasts for where the base rate would eventually peak fell from a high of 6.5 per cent to 5.25 per cent, mortgage rates shifted with this.
Nationwide BS has a two-year fixed rate at 4.22 per cent with a £999 fee at 60 per cent loan to value.
Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be.
The typical home increased in value by around £12,000 last year, according to Nationwide Building Society.
Two-year fixed rate mortgages
Looking even further ahead than late 2025 and early 2026, economists vary on where they think interest rates will level off.
Keep in mind that by doing this and not clearing the fee on completion, interest will be paid on the fee amount over the entire term of the loan, so this may not be the best option for everyone.
2. Should I take a fixed rate?
Nicky Stevenson, managing director at national estate agent group Fine & Country said: ‘December continued to defy expectations, with house prices continuing to rise despite the usual seasonal slowdown.
3. Should I take a tracker rate?
For first-time buyers, it would mean that instead of paying no stamp duty on a purchase worth £425,000, they will pay £6,205.
Most borrowers consider the security of a fixed rate as worthwhile, whereas variable rate deals can be cheaper but leave you exposed to potential rate rises.
Five-year fixed rate mortgages
At that point rate hikes stalled and gradually sentiment on inflation shifted.
Home movers currently pay stamp duty if their home costs more than £250,000, but from 1 April, this will drop back to £125,000 – the level it was at before temporary changes were made in the 2022 mini-Budget.
> Best mortgage rates calculator: Check the deals you could apply for
4. Should I get off a standard variable rate?
Paul Dales chief economist at Capital Economics said: ‘We already thought that the Bank’s inflation concerns would mean it continues to cut rates by 25basis points every quarter until mid-2025.
This represents a big shift, given that in recent years, Santander says its customers have tended to show a 60/40 split in favour of five-year fixes.
However, a selection of better deals for smaller deposits is available up to 90 per cent.
Homeowners can lock in to a new deal six to nine months in advance, often with no obligation to take it.
New forecast: Capital Economics (CE) has changed its interest rate forecast because it now thinks the Bank of England will cut rates more slowly as a result of the budget
Market expectations about how quickly and low interest rates will fall in future have shifted around of late – and this is having a direct impact on fixed rate mortgage pricing.
However, for all the potential benefit, a tracker product will also leave people vulnerable to further base rate hikes in the meantime while also being more expensive than fixed rates at present.
Two-year fixed rate mortgages
How to find a new mortgage
Borrowers who need a mortgage because their current fixed rate deal is ending, or they are buying a home, should explore their options as soon as possible.
Mortgage rates first began to increase towards the end of 2021, when inflation started to rise, resulting in the Bank of England increasing base rate to try and combat it.
Some people currently on SVRs are technically mortgage prisoners, which means they’re trapped with inactive lenders that don’t provide new mortgage products, whilst being unable to pass the affordability checks of other lenders.
This has continued into the New Year, with Halifax and Leeds Building Society already cutting rates and HSBC the latest lender to announce it is slashing home loan prices.
> Find your best mortgage deal with This is Money and L&C
If the tracker comes with an early redemption penalty that would make it expensive to jump ship, then make sure your finances could take a rise of at least 2 per cent to 3 per cent in interest rates.
For that reason we at This is Money like tracker deals that fit into one of these three categories: no early redemption penalties, a cap to how high the rate will go, or that let you jump ship for a fixed rate if rates rise.
However, these are only a minority – a group fewer than 50,000, according to the FCA.
Compare true mortgage costs
Work out mortgage costs and check what the real best deal taking into account rates and fees. You can either use one part to work out a single mortgage costs, or both to compare loans
Coventry Building Society has a two-year fixed rate at 4.99 per cent with a £999 fee at 90 per cent loan to value.
Forecasts are now generally suggesting that base rate will fall to somewhere between 4 per cent and 3.5 per cent – but based on last year’s performance, these should all be taken with a pinch of salt.
The majority of mortgage borrowers are opting for two-year fixed rate deals, according to recent analysis by Santander.
Key factors include whether you may move soon, how much you prefer the security of fixed payments for longer and how well you could cope with a rise in mortgage bills.
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