Have mortgages become cheaper since the base rate cut? - Which? News (2024)

Last week, the Bank of England finally cut the base rate to 5%, sparking excitement that mortgage rates could be set to drop.

However, our analysis shows the biggest falls actually took place last month, before the base rate was cut – and some first-time buyers with small deposits are barely seeing rates fall at all.

Read on to find out what's happening to mortgage rates for home buyers and people remortgaging, and for answers to a range of common mortgage questions.

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What's happened to mortgage rates since the base rate cut?

Average rates on two-year and five-year fixed-rate mortgages havefallen by just 0.03 percentage points since last week's base rate cut, according to Which? analysis of Moneyfacts data.

This doesn't mean the cut has been a damp squib, however. In reality, lenders were reducing their rates throughout July as borrowing costs dropped in anticipation of the predicted base rate change.

As the table below shows, the average two-year fix has fallen by 0.21 percentage points since 1 July, while the average five-year deal has dropped by 0.17 percentage points.

Increased competition between mortgage lenders could result in rates falling further in the coming days and weeks.

• Find out more:the best mortgage rates right now

What about trackers and variable-rate mortgages?

With tracker mortgages, people pay a set percentage above the base rate. This means tracker mortgage rates will have automatically dropped by 0.25 percentage points, in line with the base rate change.

When it comes to standard variable rate (SVR) mortgages and discount mortgages, any reduction will be at your lender's discretion, as lenders aren't required to drop their SVRs in line with base rate changes.

Since last week's cut, just 16 out of 71 lenders have reduced their SVRs, according to Moneyfacts.

SVRs vary significantly. Currently, Stafford Building Society has the lowest at 6.2%, while Aldermore has the highest at a punchy 9.73%.

Being on your lender's SVR is rarely a good idea, as you'll almost certainly be paying more than you would on a fixed-rate deal. Unless you're moving house soon and don't want to get locked in, or you only have a very small mortgage left to pay off, it could be worth remortgaging to a better deal.

• Find out more:how to remortgage

Are rates improving for first-time buyers?

Despite facing the highest interest rates, buyers with small deposits have seen the smallest reductions since the start of July.

We analysed the cheapest fixed-rate deals available at five loan-to-value levels. All have fallen since 1 July, but in most cases, the bigger the deposit you have, the bigger the reduction.

For those taking out a five-year 95% mortgage, the cheapest deal dropped by a tiny 0.06 percentage points.

The interactive chart below shows how much the cheapest available two-year and five-year fixed-rate deal at different LTVs has gone down by since the start of July.

Chart: reductions in cheapest mortgage rates

Your mortgage questions answered

Understanding your mortgage options and applying for a home loan can be complicated, but we're here to help.

If you need advice on the basics, see our guides on the types of mortgage, applying for a mortgage, and how mortgage payments work.

Read on for answers to some of the most commonly asked questions about mortgages.

1. Should I get a fixed-rate or tracker mortgage?

Most borrowers take out a fixed-rate mortgage, which keeps their interest rate and repayments the same for a set number of years.

However, the drop in the base rate may make tracker deals (which rise or fall in line with the base rate) more attractive.

We asked David Hollingworth of L&C Mortgages whether trackers are worth considering. He said: 'Tracker rates still carry a higher interest rate than fixed-rate deals. However, any further cuts in base rate will narrow that gap, and over time we could see more borrowers ready to take a punt on where rates could be headed.’

David says borrowers who want the flexibility to monitor the market could consider a tracker with no early repayment charges in the short term, then lock in a fixed-rate deal if and when rates fall further.

• Find out more:how to choose a mortgage broker

2. How long should I fix for... and why are five-year deals cheaper?

Five-year fixes are currently cheaper than two-year deals. This is because there's an expectation that mortgage rates will most likely fall in the short term.

With this in mind, lenders are looking to entice borrowers to lock in for longer by offering cheaper rates on five-year deals.

The best choice for you will come down to your own circ*mstances. A two-year fix will allow you to shop around for a new deal sooner, and give you a little more flexibility if you think you might want to move home in the next few years.

However, a five-year deal offers the comfort of knowing your rate and repayments will stay the same for longer. One thing to note is that five-year fixes often come with high early repayment charges, which you'll need to pay if you move home within the fixed term and don't port your mortgage to the new property.

• Find out more:how long should I fix my mortgage for?

3. I'm due to remortgage soon, when should I start looking?

If you're in the last six months of your current fixed term you can start looking for a new deal now, as most mortgage offers are valid for up to six months.

David Hollingworth says: 'You should start to shop around a good three or four months before your deal is due to end.

'That will give you plenty of time to secure a rate and get the offer in place as well as the basic legal work that is required to put a new remortgage in place.’

• Find out more:how to remortgage

4. Can I change my mind if rates go down?

Many people use a mortgage broker when applying for a home loan, and doing so can be particularly helpful when the future of interest rates is unclear.

As mentioned earlier, you can lock in a deal up to six months before your current one expires.

If you use a broker, they'll continue to monitor the market after finding you a new deal, so if rates drop significantly they can switch you across to a cheaper option.

5. What additional charges do I need to consider?

We've focused a lot on rates, but when comparing mortgages it's also important to look at the fees attached.

It's fairly common for deals with market-leading rates to come with fees in excess of £1,000 – which can sometimes make the deal pricier overall than one with a higher rate.

Whether you're better off paying a higher rate for a fee-free deal will depend on your own circ*mstances. A broker will be able to help you weigh up the pros and cons.

It's also worth looking at what incentives are included in mortgage deals. Some include free valuation fees or legal work, while others offer cashback.

6. How far will mortgage rates drop?

This is the big question, and nobody really knows the answer.

The Bank of England has warned that the base rate won't be reduced again 'too quickly', but there are still hopes that further cuts will happen soon.

There's also the possibility of rates coming down if the property market frees up and competition increases between lenders.

David Hollingworth says: 'The expectation at the moment is that there's likely to be another base rate cut by the end of the year and further easing next year.

'In the short term, I expect we will see more lenders breaking through the 4% barrier for five-year fixes soon, and rates on two-year deals could improve too.'

You can keep up to date with the latest rate changes by checking out our guide on the best mortgage rates, which is updated weekly.

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