Mortgage Rates Drop to Pre Mini Budget Lows as Lenders Compete for Borrowers

Mortgage rates in the UK have fallen to their lowest point since before the September 2022 mini budget, as lenders seek to attract customers ahead of widely anticipated interest rate reductions. The average two year fixed mortgage rate decreased to 4.86 percent last week, according to Moneyfacts, while the typical five year fixed rate stands at 4.91 percent. These levels have not been seen since October 2022, when unfunded tax cuts triggered market volatility and forced rates sharply upward.

More than 20 banks cut their rates last week, reflecting both a strengthening appetite for mortgage lending and widespread predictions of a fall in the Bank of England base rate. The next meeting of the Monetary Policy Committee is scheduled for 18 December, with the market expecting a reduction from 4 percent to 3.75 percent. The Bank has already lowered the base rate four times this year. Falling swap rates, which influence the pricing of fixed rate mortgages, are driving these changes, signalling confidence in further policy easing over the coming year.

Bank pricing strategies have become highly competitive in response to weaker buyer activity and subdued demand in the housing market. Some institutions made substantial reductions, with First Direct lowering certain products by up to 0.35 percentage points. Nationwide cut the rates of its most popular products by as much as 0.21 percentage points, offering a two year fixed deal at 3.58 percent for customers borrowing up to 60 percent of their property’s value. Barclays, HSBC, and NatWest also implemented notable reductions of up to 0.2 percentage points across select packages.

Lenders are responding to falling inflation and a budget that disappointed some with tax changes but did not prove inflationary, creating conditions for lower rates. The market environment enables mortgage rates to adjust rapidly as banks compete for a smaller pool of borrowers, resulting in tighter margins and increased value for customers. Mortgage rates, once below 1 percent when the base rate hovered at 0.1 percent during 2020 and 2021, rose rapidly after the turbulence of late 2022, peaking in August 2023. The latest downward moves reflect improved market confidence and hopes for a more stable year ahead.

Analysts expect further reductions in both base and mortgage rates well into next year, signalling potential opportunities for home buyers and those remortgaging. The landscape continues to evolve as policy and market forces interact, shaping prospects for lenders and borrowers alike.