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The average five-year fixed-rate mortgage has dropped to 4.99% for the first time since May 2023. This milestone marks a significant recovery in the housing market after more than two years of elevated borrowing costs.
The rate fell below the psychologically important 5% threshold on Thursday, reaching its lowest level since it stood at 4.98% on May 3, 2023. The steady decline reflects the Bank of England's recent interest rate cuts and improved market confidence.
Bank drives borrowing costs down
The central bank reduced the base interest rate from 4.25% to 4% earlier this month in its third rate cut of 2025. Economists predict rates could fall further to around 3.5% before stabilising, though the timeline remains uncertain.
Two-year fixed-rate mortgages have also fallen below 5%, currently averaging 4.97%. This represents the first time two-year rates have dropped below this level since before Liz Truss's mini-budget crisis in September 2022.
More choice for homebuyers
Lenders are expanding their mortgage offerings, with 7,031 residential mortgage products now available compared to 6,992 on the previous working day. The increased competition reflects growing confidence in the housing market's stability.
Only Sky News reports that traders expect no further rate cuts until February 2026 due to persistent high inflation data. This suggests the current downward trend in mortgage rates may pause as policymakers balance growth concerns with price pressures.
House prices continue rising
Official figures this week showed house price inflation accelerated to 3.7% in the year to June, with average UK house prices reaching £269,000. This marked an increase from the 2.7% annual growth recorded in May.
Monthly private rents also continued climbing, rising 5.9% annually to an average of £1,343 in July. The rental market remains under pressure despite the improving mortgage landscape.
The current mortgage rates represent a dramatic recovery from the Truss-era crisis when rates spiked above 6% and forced Bank of England intervention. Today's sub-5% rates offer renewed hope for potential homebuyers who faced severely restricted options during the 2022-2023 period.
Sources used: "PA Media", "Sky News"
Note: This article has been edited with the help of Artificial Intelligence.
