If you're considering buying a home in the UK, one of the first questions you might have is, "What are the current mortgage rates?" With lenders frequently adjusting their rates, it’s crucial to stay informed about the latest changes. Here’s an overview of the current mortgage landscape in the UK and what it could mean for prospective buyers.

The Current State of Mortgage and Interest Rates

Mortgage rates are heavily influenced by the Bank of England's (BoE) Base Rate, which is reviewed approximately every six weeks. This rate sets the tone for lending across the country. On 19 December, the BoE held the Base Rate steady at 4.75%. However, rising inflation—currently at 2.6%, above the BoE's 2% target—continues to shape mortgage trends.

Average Fixed-Rate Mortgages

For those opting for a fixed-rate mortgage, the average rate for a two-year fixed-term mortgage currently stands at 5.05%. This marks a small weekly decrease of 0.02% and a yearly reduction of 0.22%. Similarly, the average rate for a five-year fixed-term mortgage is 4.80%, with a weekly drop of 0.01% and a yearly reduction of 0.14%.

If you’re looking for the lowest available rates, the most competitive two-year fixed-term mortgage is priced at 4.20%, reflecting a weekly decrease of 0.01% and a yearly drop of 0.34%. The lowest five-year fixed-term mortgage rate is 4.07%, showing no change this week but a yearly reduction of 0.12%.

These rates are based on products with an approximate fee of £999 and account for 95% of the mortgage market.

Mortgage Rates by Loan-to-Value (LTV) Ratios

Your deposit size has a significant impact on the mortgage rate you qualify for. The higher your deposit, the lower your loan-to-value (LTV) ratio, and generally, the lower your interest rate. Here’s a breakdown:

For deposits of 5-10% (95% LTV), the average rate for a two-year fixed mortgage is 5.67%, with a weekly drop of 0.05%. For a five-year fixed mortgage, the average rate is 5.29%, decreasing by 0.02% this week.

For deposits of 15-25% (85% LTV), the average two-year fixed mortgage rate is 5.07%, a slight weekly reduction of 0.01%. The five-year fixed rate is 4.83%, with a weekly drop of 0.02%.

For deposits of 40% or more (60% LTV), the average two-year fixed mortgage rate is 4.33%, which remains unchanged this week. The five-year fixed rate is 4.22%, also unchanged.

These rates highlight how larger deposits can secure more favourable terms for borrowers.

When Could Mortgage Rates Drop?

Many economists anticipate that the Base Rate will remain at 4.75% for the near future, with reductions expected later in 2025. By autumn, the Base Rate could fall to around 4%, which might lead to further drops in mortgage rates. However, this will depend on factors such as inflation, swap rate trends, and overall economic stability.

What Do These Rates Mean for Monthly Payments?

For context, let’s consider a first-time buyer purchasing a property priced at £225,086 with an 85% LTV five-year fixed mortgage. The average monthly repayment for such a property would now be approximately £1,097 over 25 years. This is a slight increase from £1,096 a year ago, reflecting higher property prices rather than significant rate changes.

How Much Can You Borrow?

The amount you can borrow with a mortgage depends on an affordability assessment, which considers your income, expenses, and credit history. Your deposit size, or LTV, will also influence the interest rate offered.

To estimate how much you can borrow, consider using a Mortgage Calculator or applying for a Mortgage in Principle. This will give you a clearer understanding of your borrowing capacity and prepare you for the next steps towards securing a mortgage.

Final Thoughts

Staying informed about mortgage rates is crucial for making well-informed decisions during your home-buying journey. For further guidance, speak with your bank or mortgage broker to fully understand which is the best option for you.

Please note: Your home may be repossessed if you do not keep up repayments on the mortgage. Seths is not authorised to give financial advice; the information and opinions provided in these articles are not intended to be financial advice and should not be relied upon when making financial decisions. Please seek advice from a regulated mortgage adviser.