The Bank of England left interest rates unchanged at 5.25% in June, as was widely expected. This is the seventh consecutive time interest rates have been kept on hold since they were raised to their current level in August 2023. Prior to this, interest rates had been raised 14 times in a row between December 2021 and August 2023, when they were at 0.1%.
The next interest rate announcement by the Bank's Monetary Policy Committee (MPC) is at noon on August 1. Markets are expecting the Bank Rate to fall to 5% at that point.
What is happening with inflation?
The recent slump in interest rate increases has been made possible by the continuing subsidence of inflation. The latest data from the UK Office for National Statistics showed that inflation remained steady at 2% in the 12 months to June, which is the Bank of England's official target. Inflation fell to 2% in May, from 2.3% in April. As recently as September last year, the figure was 6.7%.
Slowing inflation has encouraged lenders to cut mortgage costs and the latest inflation figures have further bolstered hopes of a rate cut next month, but it remains to be seen what impact a new Labour government will have on interest rates and the wider economy.
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Free mortgage advice
Better.co.uk is a 5-star rated online mortgage adviser on Trustpilot that can help you find the right mortgage and do all the hard work of securing your mortgage with a lender for you. *If you default on your mortgage repayments, your home may be repossessed.
Average cost of popular transactions
But how much are borrowers currently paying? Interest rates vary depending on the lender and the size of your down payment, but according to our mortgage partner, Better.co.uk, the average cost of a two-year fixed rate mortgage across all borrower types* is currently 5.11%. The average costs for three-year and five-year terms are 4.96% and 4.73% respectively.
The best two-year fixed rate is currently priced at 3.79%, while the best three- and five-year deals are priced at 4.47% and 4.09%, respectively.
The average price for a two-year tracker rate mortgage is 5.71%, with the highest price in this category being 5.39%.
According to Better.co.uk, the prevailing standard variable rate (SVR) is currently 7.87% and typically, borrowers revert to the SVR when an agreement such as a fixed or tracker rate expires.
In terms of mortgage availability, according to data provider Moneyfacts, there were 6,658 mortgage transactions on the market as of July 1. The number has been steadily increasing over the past few months: on February 1, for example, there were 5,787.
Below is a live table of currently available mortgage deals, with guidance below on how to use the table.
How do bank rates affect home loans?
When bank interest rates rise or fall, it affects the cost of your mortgage.
According to industry body UK Finance, more than one million homeowners have variable rate contracts, such as trackers, which means their payments will rise or fall immediately if the bank rate adjusts.
For example, if the bank rate increases by 0.25 percentage points, a 5% tracker deal will rise to 5.25%. This increase would mean an extra £30 per month on a 25-year £200,000 loan, increasing your monthly repayments from £1,128 to £1,258.
Borrowers on fixed-rate contracts, whose interest rates are fixed, will not be affected by changes in the Bank of England rate, but as their contracts expire (some 1.6 million borrowers will expire in 2024), new contracts will be more expensive.
You can use our mortgage calculator to calculate the monthly cost of a mortgage for various interest rates.
What about home prices?
The latest data shows the property market is reported to be flatlined, with potential buyers and relocators set to settle into a more stable interest rate environment, although the prospect of interest rate cuts looms.
According to Halifax's latest House Price Report (released July 5th), average property prices fell 0.2% in June after a further slight 0.1% decline in May. The annual growth rate remained unchanged at 1.6%. Halifax increased its average house price in June to £288,485, up from £288,688 in May.
According to Nationwide's latest House Price Report (released 1 July), house prices rose 0.2% in June, compared to a 0.4% increase in May. The annual rate of increase rose to 1.5% from 1.3% the previous month. The average house price in June was £266,604, compared to £264,249 in May.
Rightmove reported that asking prices fell 0.4% in July after remaining stable in June. On an annual basis, asking prices are only 0.4% higher than in July last year. The average price of a property for sale listed on property portals is now £373,493, compared to £375,110 in June.
Why did we experience a rising interest rate cycle?
Interest rates have risen 14 times in a row between December 2021 and August 2023 as the Bank of England's Monetary Policy Committee (MPC) raised interest rates to cool the economy and tame soaring inflation.
Annual inflation, as measured by the Consumer Price Index (CPI), peaked at 11.1% in October 2022. By May 2024, it had fallen to the bank's official target of 2.0%. It remained at 2.0% in June.
One of the main drivers of the sharp rise in inflation has been the cost of energy bills, with energy regulator Ofgem's energy price cap reaching a peak of £4,279 in the first quarter of 2023 (although a temporary cap of £2,500 was in place following government intervention).
The current limit (effective from 1 July to 1 September 2024) is £1,568. This is a 7% reduction from the previous limit (effective from 1 April to 30 June) of £1,690.
The energy price cap is a quarterly figure that represents the annual bill for a typical household paying monthly by direct debit (although the actual bill will always depend on consumption).
What mortgage contracts are available?
Keeping track of your mortgage costs can be difficult, especially with interest rates changing daily, and one easy way is to use a mortgage table provided by Better.co.uk.
To find out what deals you can get at current interest rates for the type of mortgage you want, enter your personal requirements into our mortgage table (above). Here's how:
Choose whether your mortgage is to fund a home purchase or to refinance an existing property. Enter the value of your property and the amount of the mortgage you need. This will automatically generate a percentage called the “loan-to-value”. The lower the loan-to-value, the cheaper the mortgage rates available to you. If you're looking for a buy-to-let mortgage or an interest-only mortgage (these deals require a repayment strategy) or a mortgage to finance a shared ownership property, tick the appropriate boxes. Finally, narrow your search by the type of mortgage you want, such as a 2-year or 5-year fixed or tracker. The filter is set to a full 25-year mortgage term, but you can change it if you want.
What else should I know?
The cheapest mortgage rates usually come with fees. You can choose to pay the fees up front or add them to your loan. To account for the cost of fees, sort the results by “Initial Period Cost” (in the Sort by dropdown).
Alternatively, you can sort the results by initial interest rate, minimum fees, monthly repayments and even the lender's “follow-on” interest rate, which is the rate that will be reverted back at the end of the agreement term.
The cheapest mortgages require a large down payment, usually 60% or more of the property price, and in all cases, you'll need to have a sufficient income and a good credit history to qualify for a mortgage.
If you want to see what your monthly mortgage payment would be along with your household expenses under various scenarios, you can do so with our mortgage calculator.
When can I start refinancing my mortgage?
Once issued, a mortgage offer is usually valid for six months, although some lenders will allow it to be valid for up to 12 months. If you're looking to refinance the mortgage on your current home, this means you can lock in your interest rate today, with no costs or strings attached.
How are average mortgage costs calculated?
*Average mortgage costs may vary between sources depending on how the data is collected. Better.co.uk data is compiled from a panel of over 100 lenders in the last 7 days and shows the average cost of fixed rate mortgage recommendations issued to applicants.
Data includes mortgage refinances and purchase loans but excludes SVR, poor credit, self-build and shared ownership. Data is collected at the end of each business day.
Better.co.uk targets applicants with a good credit history, and low loan-to-value ratios (below 85%) make up a big part of its business, leading to lower loan interest rates.
Therefore, its average fixed interest cost may appear lower than others being offered in the market.
