As a prospective or existing homeowner, you’re probably curious about the potential direction of mortgage rates this year, especially with the recent volatility in the housing market. So, what’s the deal right now?
Key takeaways
For the sixth time in a row, the Bank of England has maintained the Bank Rate at 5.25%, however, average mortgage rates offered by lenders have increased for both two-year and five-year fixed-rate mortgages. While it cannot predict an exact time, the Bank of England reports that economic data looks ‘encouraging’ and interest rate cuts could be on the horizon as long as inflation remains low.
What is the current mortgage rate?
The Bank of England (BoE) reviews the Base Rate approximately every six weeks in order to determine whether or not it should rise or fall, or stay the same. In August 2023, the Base Rate increased from 5% to 5.25%, however, since then it has not changed. This marks the sixth time in a row that interest rates have remained unchanged.
So, correct for May 2024, the current mortgage interest rate is 5.25%. It was by a majority of 7-2 that the Monetary Committee voted to maintain this Bank Rate.
Jason Tebb, President of OnTheMarket, comments: “Over the past year, interest rates have been considerably high due to economic factors, most significantly high inflation. However, with rates expected to stay stable and the possibility of even dropping later this year, buyers can be hopeful and finally take their step onto the ladder.
Keep an eye on market trends and be ready to act quickly, so you can take advantage of these potential lower rates when they become available. And if you’ve unfortunately found yourself stuck on a high mortgage rate already, consider refinancing to secure a long-term lower interest rate and benefit from more financial stability overtime.”
Why have the banks decided to keep mortgage rates the same?
Early in May 2024, the Bank of England’s Governor Andrew Bailey reported on its decision to hold interest rates at 5.25%, explaining that the decision is to ensure inflation rates stay low.
Bailey highlights that inflation stood at around 10% last year but has now fallen to just above 3%, and is expected to fall further to 2% mid-way through the year. While falling inflation rates are ‘encouraging’, it’s imperative that they stay low, which is why the banks decided to keep interest rates at the same level until they can be sure that inflation will stay down before interest rates can be reduced.
The Bank of England has also reported that with decreasing oil and gas prices, we should anticipate to meet inflation targets of 2%, yet, we will experience a rise again in the second half of 2024, bringing us to an inflation rate of approximately 2.5%.
Are mortgage rates going down in 2024?
With the news of falling inflation, we’re sure the question on everyone’s mind is: when will mortgage rates go down? It’s challenging to predict exactly when mortgage rates will start to fall, however, it’s predicted that rates will flatline throughout 2024 before they drop. Based on this, there is optimism that mortgage rates will go down by 2025.
While the Base Rate has remained the same, high street banks and building societies rely on much more than the Bank Rate to set their interest rates for borrowers. Notably, banks depend on credit checks and evaluate the likelihood of loan repayment by the borrower. As such, a reduction in the Base Rate will not always equate to the same for mortgage rates.
Top lenders, such as Nationwide, NatWest, and Santander have all hiked their interest rates on fixed-rate mortgages, which has led to a domino effect across more than 20 big lenders. Currently, based on the lowest mortgage rates available, the average five-year fixed rate is now 5.44%, up from 5.18%, and the average two-year fixed rate has risen to 5.87% from 5.56%.
What are the current average residential mortgage rates?
| Mortgage terms | Average mortgage rates across lenders* |
| 2 years fixed-rate (75% LTV) | 5.89% |
| 5 years fixed-rate (75% LTV) | 5.34% |
| 2 year variable rate (75% LTV) | 5.85% |
| Standard variable rate (SVR) | 8.65%* |
What are the current average buy-to-rent mortgage rates?
| Mortgage terms | Average mortgage interest rate across lenders* |
| 2 years fixed-rate (75% LTV) | 5.69% |
*These figures have been sourced from USwitch, which ran a comparison of mortgage rates using Mojo Mortgages. Please note that the rates listed may not be available to you and are by no means the only products available. The figures provided are also subject to change.
What do the current mortgage rates mean for borrowers?
According to the Bank of England’s mortgage approval figures for April 2024, the net mortgage approvals for house purchases is on the rise, going from 60,500 in February to 61,300 in March. March’s figure represents the highest net approvals for mortgages since September 2022. This data may suggest that property buyers are adapting to a ‘new normal’, that being a housing market with higher mortgage rates.
Nevertheless, the increase in mortgage rates in the UK has significant implications for borrowers. The higher rates may increase borrowing costs, impacting affordability, potentially limiting housing options for prospective buyers, and certainly increasing the pinch of household budgets.
For current borrowers, rising rates could prompt an increase in refinancing to secure a more favourable deal and keep up with mortgage payments. For anyone with a fixed-rate mortgage, the interest rate rise will not impact them as of yet. Meanwhile, first-time buyers in particular are likely to struggle with the mortgage rate hikes as the largest hurdle will be mortgage affordability. Luckily, for first-time buyers, there are several government programmes in place to help them get on the ladder, such as Shared Ownership and First Homes schemes for newly built homes.
According to the Office for National Statistics’ UK House Price Index (HPI), the cost of taking out a new mortgage rose by 61% in 2022 for the average semi-detached house. Since mortgages are such large sums of money, a slight increase in interest rates could lead to a significant increase in monthly repayments for borrowers with a variable rate mortgage.
Let’s look at this year’s figures…
If you plan to purchase a property with a market value of £250,000 and put down a 10% deposit of £25,000, you’ll have a loan-to-value (LTV) ratio of 90%. Based on a fixed mortgage rate of 5.18% over a 25-year term, you’ll have to pay £1,354.17 per month in mortgage repayments. With a marginal increase of interest rates to 5.44%, the borrower will be required to pay £1,395.63 per month. The larger the loan value, the higher the increase in monthly repayments.
| Mortgage interest rate |
Mortgage length |
Loan value (GBP) |
Monthly repayments* (GBP) |
| 5.18% | 25 years | £225,000 | £1,354.17 |
| 5.44% | 25 years | £225,000 | £1,395.63 |
*Please note that these are estimates and monthly repayments will vary depending on your lender..
What should you do if mortgage rates rise?
If you’re worried about rising mortgage rates, explore refinancing options to secure a lower interest rate. Additionally, switching to a fixed-rate mortgage can safeguard against any future hikes, providing stability in your monthly payments. Remember to be mindful of any associated fees and carefully weigh the long-term savings against upfront costs.
What should you do if mortgage rates fall?
If you’ve already secured a mortgage and notice a decline in rates, you could opt for a shorter-term mortgage deal or switch to a variable rate mortgage. Again, be mindful that if rates then rise again, you’ll have larger monthly payments to make.
How much can you borrow with a mortgage?
The amount you can borrow with a mortgage is dependent on your income with lenders typically offering around four or five times your annual income. In some cases, this may be higher or lower.
Are you ready to get on the property ladder? Find your dream new home at OnTheMarket.
