Major UK lenders have made a series of mortgage rate cuts following a pivotal interest rate decision from the Bank of England, providing much-needed relief for homeowners and prospective buyers. However, under 4%-mortgages are under threat as inflation rises.
The average rate for a two-year fixed mortgage stands at 5.54%, while five-year fixed deals average 5.54%, both unchanged from the previous week, according to data from Uswitch.
This week, NatWest (NWG.L) cut interest rates while Santander (BNC.L) has reduced its residential affordability rates, following the Bank of England’s base rate cut. The updated calculations take into account a reduction in residential affordability rates by 0.25%, as well as updated household expenditure figures.
Stephen Gomez, mortgage adviser at Wesleyan, said: “Understandably, people are still focused on trying to save as much money as they can. While some have pushed through with deals at current mortgage rates to try and take advantage of the stamp duty holiday, which is in place until the end of March, more have been sitting tight, waiting for rates to fall.
“While lower rates are in the pipeline, it’s likely that the Bank of England will maintain a cautious approach through 2025. This means we’re probably going to continue to see mortgage rates swinging up and down. This makes it even more important for people to seek expert help to find the right deal, at the right time, for them.”
However, inflation hit a 10-month high in January, rising by 3% annually last month, up from 2.5% in December. This may dampen hopes of any further interest rate cuts in the immediate future, in a blow to potential mortgage borrowers and homebuyers.
Nathan Emerson, chief executive of Propertymark, said: “A slight rise in inflation had been widely speculated, especially with the Bank of England predicting inflation to increase to around 2.8% by the third quarter of 2025, before easing back downwards again.
“The news may throw many questions into the mix for homebuyers and sellers as they look to make their first or next move, especially given that interest rates have recently started to ease.
“However, it remains positive that mortgage borrowing currently remains lower compared to only twelve months ago, and new and improved mortgage products are continuing to enter the marketplace.”
HSBC
HSBC (HSBA.L) has a 4.19% rate for a five-year deal. This is unchanged from the previous week. For those who have a Premier Standard account with the lender, this rate comes in at 4.16%.
Looking at the two-year options, the lowest rate stands at 4.30% with a £999 fee, again unchanged.
Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.69% or 5.29% for a five-year fix.
This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
NatWest
NatWest (NWG.L) has a five-year deal coming in at 4.12% with a £1,495 fee, which cheaper than the previous 4.14%.
For a two-year fix, the cheapest deal comes in at 4.15%, also lower than last week's 4.23%. In both cases, you'll need at least a 40% deposit to qualify for the rates.
Santander
At Santander (BNC.L), a five-year fix now come in at 3.99%, unchanged from the previous week, with a £999 fee, assuming you have a 40% deposit.
For a two-year deal, customer can also secure an under-4% offer, with the same £999 fee, which is also unchanged.
Barclays
A five-year fix at Barclays (BARC.L) comes in at 4.09%, which is untouched from the previous week. For "premier" clients this rate drops to 3.99%.
When it comes to two-year mortgage deals, the lowest you can get is 4.22%, also unchanged from last week’s deal.
Barclays has also launched a new mortgage proposition designed to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed towards a property, without needing to lend or gift money directly or provide a larger deposit.
Under the new scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.
However, with Mortgage Boost, if a second person — such as a parent — joins the application, the total borrowing potential can rise substantially. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide
Nationwide (NBS.L) is offering a five-year fix at 4.34%, which comes with a £999 fee and requires a 40% deposit. This is unchanged from last week.
Nationwide offers a two-year fixed rate for home purchase at 4.46% with a £999 fee — also for borrowers with a 40% deposit. Again, unchanged from the previous week.
Halifax
Halifax, the UK’s biggest mortgage lender, offers a five-year rate for 4.20% (also 60% LTV), which is below last week’s 4.29%.
The lender, owned by Lloyds (LLOY.L), has a two-year fixed rate deal coming in at 4.35%, with a £999 fee for first-time buyers, which is also lower than the previous 4.43%.
It also offers a 10-year deal with a mortgage rate of 4.78%.
The lender has announced the launch of a new 1.5-year fixed-rate remortgage product in response to growing demand among borrowers for shorter-term deals.
Shorter-term fixes offer certainty over monthly payments while also allowing households to switch to a new deal sooner to capitalise on lower rates.
Cheapest mortgage deal on the market
With mortgages making their way back into the market, prospective homeowners have reasons to smile when it comes to finding a good deal.
Barclays and Santander now have the cheapest deal on the market. However, the 3.99% offer requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal.
Given the average UK house price sits at £366,189, a 40% deposit equates to about £147,000.
A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Lender April Mortgages is offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.
The company, which is part of an independent Dutch asset manager DMFCO, has interest rates starting at 5.20%, with an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income, in an effort to support more borrowers on to the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings, with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies.
With 1.8 million fixed mortgage deals set to end in 2025, according to UK Finance, many homeowners will be hoping the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely be rooting for rates to remain at or near their current levels.
