In what was widely welcomed as a sign of improving economic circumstances, the Bank of England cut interest rates from 4.75% to 4.5% earlier this month, the lowest it has been in over 18 months. Industry experts have noticed a trend in the mortgage market, namely the increased desirability of mortgage schemes available to a homebuyer from across the mortgage market.
Let’s take a closer look at the data and explore the current state of the mortgage market.
What is the Current State of Mortgage Rates?
Generally, the direction of mortgage rates is slowly climbing down. According to Rightmove, the average two-year fixed mortgage rate is now 4.98%, down from 6.16% a year ago. Similarly, the average five-year fixed mortgage rate is now 4.61%, down from 5.63% a year ago.
Richard Donnell, executive director of Zoopla, emphasises that ‘2025 is starting with lower mortgage rates than the last two years,’ adding that the ‘greater stability in borrowing costs has brought more buyers and sellers back into the housing market.’
At present, Halifax is offering one of the lowest five-year fixed rates for a remortgage with a minimum of 40% equity at 4.18%. Furthermore, Halifax is offering a mortgage rate covering homes at 75% of its value at 4.36%.
As a result, Halifax is offering some of the best deals on the market. Given Halifax’s influence on the mortgage market, Andrew Montlake, managing director of Coreco, highlights that ‘where the Halifax goes other lenders tend to follow, so these cuts could trigger a chain reaction.’
This chain reaction is causing lenders such as HSBC, Coventry Building Society, Barclays, Clydesdale Bank, Santander, and Nationwide to accelerate lowering mortgage rates for their customers.
To take the latter two as the primary examples, Santander is reducing the standard variable rate from 7.0% to 6.75% on 3 March, while Nationwide is reducing the standard mortgage rate from 7.51% to 7.24% on 1 March.
Considering that approximately 8 in 10 mortgage customers have fixed-rate mortgage deals, the current schemes are becoming more enticing for those looking to take out a mortgage.
What is Causing Mortgage Rates to Fall?
The twofold factors of real wage growth and the gradual decline of interest rates have facilitated greater entry into the mortgage market, previously fraught with rigidly high mortgage rates from across the market.
As David Hollingworth, associate director at L&C Mortgages, points out, ‘mortgage rates are significantly better than they were during some of the highly volatile periods of the last couple of years but have bobbed up and down, as markets have been hesitant in how quickly they expect rates to come down.’
A sturdier economic landscape has promoted greater competition among mortgage lenders, each looking to take advantage of the renewed sentiment among industry experts that property sales will rise in 2025.
According to Alexander Hall, the availability of mortgages and remortgages increased by 4.8% and 4.7% respectively since the autumn budget.
As of 5 February, there are 694 mortgage schemes available for a first-time buyer, a figure representing an 11% increase compared to the previous year. For buy-to-let investors, there are 2,220 mortgage schemes available on the market, which amounts to an annual increase of 12.9%.
Underwriting the increased product availability is the increased demand exhibited by consumers. Mortgage searches in January 2025 stood at 293,980, a 91.44% increase from the 152,994 searches in December 2024. Although mortgage searches were down by 10.44% compared to January 2024, January 2025 was the sixth busiest month for mortgage searches recorded by Twenty7tec.
Alexander Hall director Stephanie Daley offers the following analysis on these results: ‘the good news for homebuyers is that mortgage product availability has improved and there is now a greater degree of choice […] not only has the number of products available increased but so has the number of lenders who are now offering higher income multiples to help ease the affordability challenge when getting on the ladder.’
How Will Mortgage Rates Unfold?
Increased product choices offering more desirable mortgage schemes are great for consumers. It allows for greater market participation by making mortgage schemes less financially burdensome.
Given the upticks in the key property metrics – higher property listings, increased property growth, lowered interest rates – it is likely that mortgage rates will continue to climb down from their historic generational heights.
Yet the scale and speed remain open to how market conditions continue to perform over the long term, dependent upon the activity of the property market and how the Bank of England executes further reductions of interest rates. Such factors will determine how mortgage rates will unfold, though the current reduction is steering the property market in the right direction.
