The average two-year mortgage rate in the UK has dropped to 4.99%, slipping under 5% for the first time since Liz Truss’s mini-budget in September 2022, according to data from Moneyfacts.
The financial information service called the move a “symbolic turning point,” noting that lenders are now “competing more aggressively” for borrowers. The decline follows five Bank of England interest rate cuts since August 2024, though the Bank’s most recent meeting showed a split among policymakers—raising doubts about further cuts this year.
Moneyfacts cautioned that while mortgage rates are responding to these base rate reductions, they are unlikely to fall dramatically.
Borrowers face renewals
About 1.6 million fixed-rate mortgage deals are set to expire in 2025, with 900,000 of them ending in the second half of the year, according to UK Finance. Many homeowners will still face significantly higher rates than the ultra-low levels seen before the mini-budget.
The mini-budget—announced by then-chancellor Kwasi Kwarteng—proposed £45bn in unfunded tax cuts, sparking market turmoil and pushing up UK government borrowing costs. This increase filtered through to mortgage rates, which peaked in July 2023 at levels not seen since the 2008 financial crisis.
Rising rates were already a global trend as central banks tried to curb inflation, which had been exacerbated by the energy price shock following Russia’s full-scale invasion of Ukraine.
Inflation outlook and house prices
The Bank of England expects inflation to rise to 4% in September 2025 before returning to its 2% target by 2027. Moneyfacts said this forecast suggests the Bank’s base rate—currently 4%—is likely to stay steady for some time.
Meanwhile, Halifax reported that average UK house prices rose by over £1,000 in July to £298,237, close to a record high. Halifax’s head of mortgages, Amanda Bryden, said that falling mortgage rates, rising wages, and more flexible affordability rules are helping improve the housing market’s outlook. She expects **modest price gains** through the rest of the year.
