Average two-year fixed mortgage rate plummets to lowest level since 'mini-Budget'

These rates were last lower in September 2022; while average five-year deals fall to six-month low.

Borrowers may be pleased to see the average two- and five-year fixed rates falling month-on-month, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.

As lenders slashed prices across the market, average rates for a two-year term fell from 5.32% to 5.18% at the start of May – the lowest this figure has been since September 2022, just before the now infamous ‘mini-Budget’ announcement which saw rates spike.

Meanwhile, the average rate for a five-year deal dropped to a six-month low at 5.10% in the same period, down from 5.18% previously.

“Such vigorous activity led to notable cuts to the overall average two- and five-year fixed mortgage rates, seeing the biggest monthly fall to the two-year fixed rate in over six months,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Indeed, average two-year fixed mortgage rates in particular benefited greatly from the wave of repricing, falling by the largest monthly margin (0.14 percentage points) since October 2024.

However, as rates dropped, so did the average shelf-life across the whole of the market, which fell from 21 to 19 days between April and May.

Five-year rates closing the gap

The aforementioned ‘mini-Budget’ threw the mortgage market into a frenzy when it was unveiled at the end of September 2022, with two-year fixed deals charging higher rates than their five-year counterparts ever since.

Nonetheless, the difference between both sectors has been gradually closing, with Springall believing the inversion “could soon come to an end”.

As a result of these latest cuts, the gap now stands at only 0.08 percentage points, having almost halved from 0.14% the month prior, and down from the 0.43 percentage point rift recorded in May 2024.

Product choice climbs to over 17-year high

The beginning of May also brought a surge in the number of deals available on the market. Rising from 6,870 in April to 6,993 in May, borrowers now have the largest selection of deals to choose from since October 2007 when choice peaked at 7,421.

While the number of mortgages able to finance up to 60% loan-to-value (LTV) declined month-on-month from 797 to 786, first-time buyer deals again experienced a boost in product count.

Choice for both the 95% and 90% LTV sectors already hit a 17-year high last month but maintained the record by increasing even further in the month to May, rising to 462 and 876 respectively, with the latter now accounting for 12.5% of the market.

“First-time buyers remain an integral part of the mortgage market, so any relief on stress testing or innovative products can make a huge difference to those struggling to find an affordable home,” explained Springall.

Will rates continue to fall?

This latest round of cuts was largely fuelled by falling swap rates, though it’s difficult to determine whether they’ll maintain their downward momentum.

However, coupled with last week’s decision from the Bank of England’s Monetary Policy Committee (MPC) to cut the base rate from 4.50% to 4.25%, prices could continue to fall in the coming weeks.

With the base rate expected to fall again before the end of the year, many borrowers could therefore feel pressured to hold off on locking into a new deal in case of future cuts.

With this in mind, it could even be worth considering a tracker mortgage. Keep in mind that while it could mean paying less on your mortgage should the UK’s central interest rate continue to fall, repayments could also rise should the opposite occur.

Even so, borrowers coming to the end of a two-year term will find it relatively easy to better their previous deal, especially when faced with the costly alternative of reverting to their lender’s Standard Variable Rate (SVR). Conversely, for those concerned with recent volatility, securing a five-year mortgage may instead provide greater peace of mind by locking in rates for longer.

“Borrowers excited by the arrival of cheaper mortgage rates would be wise to seek advice to assess the overall cost of any deal to ensure it’s the right choice for them,” added Springall.

If you need help deciding what deal is best suited to your financial situation, it may be worth speaking to a mortgage broker.

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