Over 80% of mortgage borrowers in the UK have fixed-rate mortgages today. With all of the top lenders now offering fixed mortgage rates under 4%, there has never been a time filled with such incredible opportunities for borrowers. With interest rates on the rise, people are looking for predictability in their housing and mortgage payments. Most are opting for more long-term fixed-rate arrangements to avoid the turbulence associated with short-term alternatives.
Rachael Hunnisett, director of mortgage distribution at April Mortgages, has seen this shift. Our third tenant is that a lot of borrowers want to get out from underneath “the roulette wheel” of short-term fixed-rate contracts. This sentiment captures the emerging yearning among homebuyers for a dependable monthly payment in an otherwise uncertain economic environment.
The market has undergone a dramatic shift. Lenders have recently started offering home loans of up to seven times a borrower’s income, making this market much more generous than most other shorter-term loans. Moneyfacts has put the average rate for a two-year fixed deal at 5.21%. In comparison, a long-term, five-year pact provides an even paltrier return, at 5.12%. The small spread between swap rates indicates that mortgage rates are nearly identical for two-year and five-year maturities. This means there’s little to distinguish them from one another.
David Hollingworth of broker L&C pointed to the relevance of sub-4% agreements. He continued that these rates have now become the core benchmark of the range of mortgages major lenders are offering. Building society Nationwide, the UK’s largest, took an unusual step last month to increase remortgage rates. Taken together, these smart improvements are sparking today’s cost-saving boom.
Related Aaron Strutt of broker Trinity Financial said borrowers are moving more quickly than ever. They are bidding on contracts a year or two years before their existing contracts are up. He commented on the current mindset of individuals, saying, “More borrowers are taking two-year fixes on the assumption rates will reduce but many may be better off taking longer term fixes for the payment security.” He further noted that though base rate cuts were possible going forward, “there are no guarantees.”
Increasingly, up to 800,000 of these fixed-rate mortgages with 3% or below interest rates will mature on an annual basis. We expect this trend will continue through the end of 2027. This next round of expirations will likely push borrowers into much higher market rates. Consequently, their daily financial lives and family obligations, such as children’s extracurriculars and household bills, may be disrupted or even threatened.
The lenders have returned to the table, plying developers with attractive sub-4% offers. As brokers caution, we shouldn’t be relying on more interest rate cuts. The market uncertainty caused by the fallout from U.S. tariff policies is another huge factor. Consequently, many are now predicting a series of base rate cuts before the end of this year.
