The average two-year mortgage rate is at a three-year low at 4.99%, the first time it’s dropped below 5% since Liz Truss’s mini-budget in September 2022, Moneyfacts research shows.
Some deals have dropped below 4% this year, mainly in cases where people had a bigger deposit.
Despite these positive developments, rates are unlikely to see further significant reductions this year, according to John Morris, mortgage advisor from Pure Property Finance.
Morris said: – it definitely won’t reach the 2% mark that we had pre-Covid.
“There’s some optimism that rates might soften a little bit throughout the year, but it won’t be a dramatic drop. With inflation starting to ease ever so slightly, lenders are still pricing conservatively and are still reluctant to make any huge changes.
“The Bank of England base rate is a key driver of interest rates. We’ve started to see this come down consistently, with two members of the MPC most recently voting for a 0.5% cut.
“Mortgages may decrease more in the coming months, but won’t reach pre-pandemic levels for a long time.”
Economists predict the Bank of England to make two more base rate cuts by the middle of 2026, but the pace of reductions is limited by the UK inflation rate, which stood at 3.8% in the year to August.
Peter Stimson, head of product at MPowered Mortgages, said: “Mortgage interest rates are currently unlikely to fall much further.
“Even though the Bank of England is expected to make two more base rate cuts by the middle of 2026, these have already been priced in by lenders and the pace of the Bank’s cuts is being slowed by Britain’s stubborn inflation problem.”
