Mortgage rates drop by biggest margin in almost two years

But, is the positive momentum about to be thrown off course by renewed geopolitical tensions?

With millions of fixed mortgages due to expire in 2026, borrowers currently searching for a new deal may feel relieved to learn that average rates fell by their biggest monthly margin in almost two years between June and July, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.

It found the typical rate charged by a two- and five-year fix plummeted by 0.16 and 0.11 percentage points, respectively, month-on-month to 5.52%. In both cases, this marked a third consecutive month of decline and represented the largest drops recorded since October 2024.

“It has been three months since fixed rates inverted, where the two-year fixed has been higher than its five-year counterpart,” noted Rachel Springall, Finance Expert at Moneyfactscompare.co.uk. “However, this has started to unwind, so the rates should hopefully start to fall back into a more traditional pricing structure,” she explained.

What’s more, borrowers have over 40 extra deals to choose from month-on-month as overall product count rose from 7,132 to 7,177. These form part of the nearly 1,000 mortgages to have returned to the market since the start of May – equivalent to 76% of those withdrawn in April. 

In fact, Springall said that “stability appeared to be a recurring theme” throughout June, with the amount of time a deal typically spends on the market shortening by just one day to 14 days at the start of July. “This is a much more acceptable timeframe compared to the record low of eight days recorded at the start of April,” she added.

However, Springall warned that the overall positive trajectory “could be thrown off course” by “renewed escalation in geopolitical tensions”. Only a matter of days ago, it was reported that US President Donald Trump had called off the ceasefire in Iran – an action that could generate more uncertainty and further alter economic forecasts.

Outlook for first-time buyers

It’s not just existing borrowers keeping a close eye on mortgage rates; those looking to get onto the property ladder might be pleased to learn that average two- and five-year fixed rates charged by deals requiring a 5% or 10% deposit fell across the board between June and July. Furthermore, Springall highlighted that “product choice at 90% [loan-to-value] has surpassed 900 for the first time since the start of March”.

Nevertheless, she said there is still room for improvement, “particularly for borrowers who can only amass a 5% deposit”. The number of deals that can finance up to 95% LTV dropped month-on-month and represent just 8% of the core market.

“It is vital that lenders continue to create innovative products and relax criteria carefully to support first-time buyers, as they remain the lifeblood of the mortgage market,” said Springall. “Buyer confidence may well remain subdued until the supply of affordable housing improves this year, but for now, mortgage costs are not expected to rapidly escalate,” she continued. 

“Seeking advice in the first instance to understand costs and to navigate the mortgage maze is vital, as headline-grabbing low-rate deals might not always be the best choice,” Springall concluded. 

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