· 5 min read
Are mortgage rates going down in the UK?
Mortgage rates are falling, but the pace is slower than the Bank of England base rate cuts suggest. The average two-year fixed deal has dropped from above 6 percent to the low 4s. How much further they fall, and when, depends on swap markets and services inflation.
Yes, UK mortgage rates are going down. The average two-year fixed mortgage rate peaked above 6 percent in mid-2023 and has since fallen to the 4.2 to 4.6 percent range, depending on loan-to-value ratio. The average five-year fixed rate has followed a similar path, now sitting between 4.0 and 4.4 percent. The direction is clear. The pace is slower than many borrowers expected, and the reason is worth understanding.
Why mortgage rates do not simply follow the base rate
A common misconception is that mortgage rates track the Bank of England base rate directly. They do not, except for tracker products. Fixed-rate mortgages, which account for the majority of new lending, are priced off swap rates: the rates at which banks exchange fixed and floating cash flows in the wholesale market. Swap rates reflect where markets expect the base rate to be over the fixed term of the mortgage, not where it is today.
When the Bank of England cuts the base rate by 0.25 percentage points, fixed mortgage rates do not automatically fall by the same amount. If the market had already priced in that cut, the swap rate will barely move. If the cut was unexpected, swap rates will fall and fixed-rate mortgage pricing will follow within days. The key variable is not the base rate itself but the gap between current rates and market expectations.
Where mortgage rates stand now
As of May 2026, with the base rate at 4.25 percent, the best available two-year fixed rates for borrowers with a 40 percent deposit sit at around 4.1 to 4.3 percent. For borrowers with a 10 percent deposit, the equivalent is typically 0.5 to 0.8 percentage points higher. Five-year fixes are marginally lower than two-year fixes at most loan-to-value bands, reflecting the market's expectation that rates will continue to fall over the medium term.
These figures are still considerably higher than the sub-2 percent rates available in 2020 and 2021. A borrower remortgaging from a five-year fix taken out in 2021 will face a materially higher monthly payment regardless of when they remortgage, because the reference rate has moved permanently upward from the near-zero baseline of the 2010s. The question for most borrowers is not whether rates are going down but how far, and whether to fix now or wait.
How much further will mortgage rates fall?
Swap markets, which drive fixed-rate mortgage pricing, currently imply the base rate reaching around 3.5 to 3.75 percent by end-2027. If that path is realised, the best two-year fixed rates would likely settle in the 3.5 to 3.8 percent range, with five-year fixes slightly lower. That is a meaningful further reduction from current levels, but not a return to the pre-2022 environment.
The risks to that path run in both directions. If services inflation proves stickier than expected and the Bank of England slows its cutting cycle, swap rates will reprice upwards and mortgage rates will stabilise or edge higher. If global conditions deteriorate and the Bank cuts more aggressively, mortgage rates could fall faster than the current market path implies. The base case is gradual, uneven decline.
Tracker versus fixed: which makes more sense now?
Tracker mortgages follow the base rate directly, typically at a set margin above it. With the base rate at 4.25 percent, most trackers are currently priced around 4.5 to 4.75 percent: higher than the best fixed rates. The argument for a tracker is that each base rate cut passes through to your monthly payment immediately, without needing to remortgage. The argument against is that you are taking on rate risk in both directions, and the current gap between trackers and fixes means you are paying a premium for that optionality.
For borrowers who expect rates to fall quickly and want to benefit from each cut in real time, a tracker can make sense. For those who want certainty, a two-year fix at current levels locks in a meaningful improvement from the 2023 peak, whilst leaving the option to remortgage again in 2028 into what should be a lower-rate environment.
What this means for the housing market
Falling mortgage rates are a partial offset to the affordability pressure that built up during 2022 and 2023. But house prices have not fallen sufficiently to restore pre-2022 affordability levels, particularly for first-time buyers. The combination of elevated prices and mortgage rates above 4 percent keeps monthly repayments significantly higher than the 2019 to 2021 baseline even for the same property. Affordability is improving, but from a historically stretched starting point.
The falling rate environment is more directly beneficial for existing homeowners remortgaging than for new buyers. For current owners, each reduction in the fixed rate at remortgage represents a genuine improvement in monthly cash flow. For the full context on the Bank of England rate cutting cycle and what is driving it, see our note on UK interest rates.
CPIx, Briefed's composite consumer pressure index, tracks mortgage cost pass-through as part of the household financial conditions picture. As base rate cuts feed through to remortgage rates across the stock of outstanding mortgages, the pressure on household cash flow will ease gradually. The Briefed daily briefing covers each Bank of England decision and its immediate market implications, weekdays at 6:45am. Free to read.