Mortgage interest rates have dropped under 5% for the first time since the disastrous mini-budget that former Prime Minister Liz Truss oversaw. This is a welcome change that should be a source of hope for borrowers in every corner of the UK. Looking specifically at the average interest rate on two-year and five-year fixed mortgage deals, it has fallen dramatically. This reduction will provide a welcome relief to the hundreds of thousands who are about to refinance this year.
This time, since last August, the Bank of England cut interest rates five times to support the economy. This cyclical development fostered a consistent downward spiral in mortgage prices. For reference, the average rate for two-year fixed deals dropped to 6.85% in early August 2023 before declining to around 5.30%. Additionally, the average interest rate charged on these deals was 4.99% as of August 13, 2025.
As of July 2023, it was the most expensive time to get a mortgage since the 2008 financial crisis. Unfortunately, this explosion of additional fees led to widespread confusion among borrowers. It all got a lot worse with the subsequent sharp rise, hitting a recent high point of 6.65% on 31 October 2022 for 2-year fixed rates. Five-year fixed rates were at 2.69pc and saw a similar decrease. They skyrocketed from 2.66% at the beginning of January 2022 to a high of 6.51% later that same year.
The recent cuts have led to an “ultra-competitive” mortgage market, according to Hina Bhudia, a partner at Knight Frank Finance. She observed that lenders today are doing business on “incredibly thin” margin just to win the business.
“The mortgage market is ultra-competitive at the moment.” – Hina Bhudia, a partner at Knight Frank Finance
That fierce competition among lenders has resulted in some of the lowest barometers reaching 3.7% looks mighty attractive right now. With millions of borrowers coming off cheap fixed-rate deals soon, there’s a time-sensitive opportunity here to get the best financial deal.
The Bank of England’s latest decision, just a week or two ago, was a 5-4 split vote amongst its policymakers. This makes another interest rate cut this year less likely. According to a spokesperson for Moneyfacts, this uncertainty threatens to hold the base rate at 5.25% for the time being. Because of this, we may even expect it to stay lower longer.
“This is likely to mean the base rate will hold around its current level for longer.” – Moneyfacts spokesperson
