Homebuyers are getting a welcome break as mortgage rates have fallen at their fastest pace for almost two years.
Lenders slashed fixed-rate mortgage pricing in July, with the average two-year fixed deal dropping by 0.16 percentage points to 5.52% and the average five-year fix falling by 0.11 percentage points to the same level. For someone taking out a new home loan of £250,000 over 25 years on a repayment mortgage, the reduction in the average two-year rate from 5.68% to 5.52% cuts monthly repayments by around £24 a month, or £288 a year.
It marks the biggest monthly fall in fixed mortgage rates since October 2024 and offers fresh hope that borrowing costs are beginning to ease after months of uncertainty, according to analysis by Moneyfacts.
The average rate available on all new mortgages also fell by 0.12 percentage points to 5.47% – the biggest monthly drop since March 2025 – although it remains well above the sub-5% level seen earlier this year.
The improvements have been driven by falling swap rates, which determine the cost of fixed-rate lending for banks and building societies.
Borrowers with smaller deposits also received a boost
The average five-year fixed mortgage at 95% loan-to-value fell below 6% for the first time since March, while the average two-year rate for buyers with a 5% deposit dropped to 6.13%.
Lenders are also offering more choice after the turmoil caused by market volatility earlier this year. The number of mortgage products on sale rose by 45 during the past month to 7,177, marking the third consecutive monthly increase.
Nearly 1,000 mortgage deals have returned to the market since May after more than 1,200 were withdrawn during the upheaval triggered by conflict in the Middle East.
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers will breathe a sigh of relief to see fixed mortgages falling at their fastest pace for almost two years, combined with a calmer period of product churn and an uplift in choice.
“Lenders responded positively to falling swap rates in June, seeing notable drops to the average two- and five-year fixed rates by 0.16% and 0.11% respectively, both settling at 5.52%.
“However, this positive trajectory could be thrown off course, as renewed escalation in geopolitical tensions could slow the tempo of mortgage rate cuts.”
She added that the recovery in mortgage choice had been significant, with 976 products returning to the market since May, representing around three-quarters of the deals withdrawn during April’s market disruption.
Despite the improving picture, mortgage costs remain considerably lower for borrowers who remortgage than for those left on their lender’s standard variable rate.
The average standard variable rate stands at 7.13%, meaning homeowners who fail to switch at the end of a fixed deal could still face sharply higher monthly repayments.
Ms Springall said buyer confidence remained fragile because of affordability pressures, but argued lenders should continue developing products to help first-time buyers onto the property ladder.
She also called for changes to stamp duty thresholds for first-time buyers to reduce the upfront cost of purchasing a home.