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Six weeks on from the Bank of England cutting its base rate, mortgage rates are continuing to fall.
Cheaper rates will be music to the ears of homebuyers and people remortgaging, but those with lower deposits are still seeing the smallest cuts.
Read on to find out how lower rates are impacting mortgage repayments, and whether the experts think the base rate will fall again this month.
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Mortgage rates have dropped significantly over the past couple of months, with the cheapest five-year deals at 60% loan-to-value (LTV) now below 4%. These are some of the lowest rates recorded in nearly two years.
This has mainly been brought about by the Bank of England's decision to cut the base rate from 5.25% to 5% on 1 August, though rates were already dropping during July.
Data from Moneyfacts shows that the average two-year fixed-rate mortgage has dropped by 0.25 percentage points (pp) since the base rate cut, and 0.43pp since 1 July. Five-year fixes have fallen by 0.17pp and 0.31pp respectively.
| Type of mortgage | Ave rate (1 Jul) | Ave rate (1 Aug) | Ave rate (12 Sep) | Change |
| Two-year fixed | 5.95% | 5.77% | 5.52% | 0.43pp |
| Five-year fixed | 5.53% | 5.39% | 5.22% | 0.31pp |
With some confidence returning to the property market, lenders have been chopping and changing their deals to attract buyers and people remortgaging.
Much of the competition has focused on borrowers with bigger deposits of 25%-40%.
The cheapest two-year fix at 60% LTV has fallen by 0.34pp since August's base rate cut, while the cheapest five-year deal at 75% has dropped by 0.30pp.
Sadly for first-time buyers, we haven't seen any dramatic reductions to 90% or 95% mortgages: the cheapest two-year deal at 90% LTV dropped by just 0.04pp.
Falling rates are a good thing for borrowers, but it can be difficult to quantify the impact that cheaper rates have on monthly repayments.
We've analysed the deals with the biggest and smallest price drops to provide examples of the real savings you might make.
The figures below will vary significantly depending on your circumstances, but they provide a broad indication.
The cheapest two-year deal at 60% LTV has fallen by 0.34pp since 1 August, from 4.41% to 4.07%.
Let's say you're looking to buy a house for £300,000, borrowing £180,000 at 60% LTV, on a 25-year term.
At the previous market-leading rate of 4.41%, you could expect to pay around £1,000 a month. At the current rate of 4.07%, you'd pay around £955 – a saving of £45 a month, or nearly £1,100 over two years.
The cheapest 90% deal has dropped by just 0.04pp since the base rate cut, from 5.19% to 5.15%.
Let's assume you're buying a property for £200,000, borrowing £180,000 at 90% LTV on a 25-year term.
We've calculated that your repayments would be around £1,072 at 5.19%, or £1,068 at 5.15%.
In this scenario you'd save less than a fiver a month, which might just about stretch to a pint – if you choose your pub wisely.
If you're thinking of moving home or are coming up to remortgage, you'll probably be hoping for another cut in the base rate this month.
The next announcement is due at midday next Thursday (19 September), but the most likely outcome at this point is that the base rate will be held at 5%.
David Hollingworth, of the mortgage broker L&C Mortgages, says: 'The Bank was quick to try and temper expectations of cuts coming thick and fast, so it may be a little overoptimistic to expect another reduction in September.
'We should also remember that the recent cut was a split decision, with four of the nine members preferring to hold the rate at 5.25%. Nonetheless, the hope will now be that another cut will come before the end of the year.'
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Join Which? MoneyWhatever happens next week, experts anticipate that mortgage rates will continue to drop in the medium term.
However, it's highly unlikely we'll see a return to the sub-2% rates recorded a couple of years ago anytime soon.
Nicholas Mendes, broker at John Charcol, says: 'If next week's announcement is a hold, it will likely slow the recent decline in rates rather than cause them to reverse in the opposite direction.
'Looking ahead to 2025, mortgage rates are expected to fall further, likely by around 0.5%. This decline will be driven by ongoing base rate cuts and stabilising economic conditions.
'As confidence in the economy improves and inflation remains controlled, lenders will have greater flexibility to offer competitive rates.'
Buying a home can be overwhelming, but we're here to help guide you through the process.
You can keep up to date with the latest market-leading mortgage deals on our best mortgage rates page, which is updated weekly.
We're also keeping a close eye on the property market. See our guide on what's happening to house prices to find out whether buyers or sellers currently have the upper hand.
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