Best mortgage rates for home movers and first-time buyers

Mortgage rates are falling, as the market continues to recover from the shockwaves caused by the government’s mini-budget last autumn – but figures still remain high.

More than 1,500 mortgages were withdrawn in September, resulting in average rates on two-year fixes rising to a 14-year high. However, as some of the cheapest deals have now started to dip below 5%, there are signs that the market is calming somewhat.

Here, we explain why banks pulled their deals and outline the cheapest mortgages currently available.

Why did mortgage rates rise so steeply?

Last September, some of the UK’s biggest mortgage lenders withdrew their deals for home buyers and people remortgaging.

The dramatic drop in the value of the pound following the mini-budget led to expectations that the cost of borrowing would increase more steeply than expected. 

Faced with this prospect, a series of lenders pulled their deals overnight, leaving rates much higher than before.

The good news for borrowers is that deal numbers are now rising again and rates are slowly falling. Rates below 5% have now begun to return.

What’s happening to mortgage rates?

Mortgage rates rocketed in 2022, but they began to drop slightly in the latter part of the year.

The rates are highly dependent on the Bank of England recently increased the base rate which currently stands at 3.5%. It rose last month for the ninth successive time since December 2021, when the rate was at a historic low of 0.1%.

These hikes are part of the Bank’s attempts to keep rising inflation at bay. CPI inflation hit 10.7% in November, more than five times the target of 2%.

The cheapest mortgage rates are now around five times the record lows of 0.79% recorded a year ago, when there were more than 100 fixed-rate mortgages with rates below 1%.

Data from Moneyfacts shows that despite the recent drop, mortgage rates remain significantly higher than on 23 September, the day of the mini-budget.

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Note: The below figures are correct at time of writing, but there’s no guarantee the specific deals we’ve listed will remain on the market. If you’re looking to apply for a mortgage imminently, a whole-of-market mortgage broker will be able to give you up-to-date advice on your options.

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Best rates for borrowers with bigger deposits

The best mortgage rates are usually available for people borrowing at 60% loan-to-value, although even these market-leading deals are now priced around 5%. 

Two-year fix

Cheapest rate with no upfront fee: 5.04% (West Brom Building Society) 

Five-year fix

Cheapest rate with no upfront fee: 4.54% (Leeds Building Society) 

Best rates on 90% mortgages

If you’re looking to buy your first home, you can get a mortgage with a deposit of 5% of the property’s value (known as a 95% mortgage). If you can stretch to a 10% deposit, however, you can benefit from a much lower rate. 

Two-year fix

Cheapest rate with no upfront fee: 5.49% (West Brom Building Society) 

Five-year fix

Cheapest rate with no upfront fee: 4.94% (Halifax) 

Best rates on 95% mortgages

Borrowers with the smallest deposits generally pay the highest mortgage rates. With fewer deals available than before, many 95% mortgages are now priced at above 6%.

Two-year fix

Cheapest rate with no upfront fee:  5.7% (Nottingham Building Society) 

Five-year fix

Cheapest rate with no upfront fee:  5.09% (Halifax) 

Does a lower rate always mean a cheaper deal? 

Above, we’ve listed the deals with the cheapest initial rates. This gives a good indication of the rate you might be able to get, depending on the size of your deposit, but before choosing a deal you’ll also need to factor in upfront fees. 

Some lenders charge fees as high as £1,999 on their lowest-rate deals. By charging higher fees, lenders can offer better rates and recoup the shortfall elsewhere.

Banks commonly charge fees such as £999, £1,499 or £1,999, but some use percentages instead – for example 0.5% of the overall loan amount. If you’re borrowing a larger sum, this can be significantly more expensive.

You’ll usually need to pay a premium of 0.2%-0.5% to get a fee-free deal. Sometimes, this can pay off. For example, if you can get a mortgage at 5.5% with a £999 fee, or 5.6% with no fee, the latter will be cheaper over the fixed term.

If you’re unsure about which type of deal to go for, a mortgage adviser will be able to analyse deals based on their true cost, taking into account rates, fees and incentives.

How long should you fix your mortgage for?

Borrowers most commonly fix for either two or five years. Five-year deals were once significantly more expensive, but in most instances it’s now actually cheaper to fix for longer. 

Securing your rate for longer is a good idea in theory, but it’s not the right move for everyone.

Five-year fixes usually come with higher early repayment charges, meaning that you could be charged thousands of pounds if you decide to repay the mortgage early (for example, if you move home and don’t transfer it to the new property).

With this in mind, it’s important to think of your own medium and long-term plans before settling on a fixed term.

Which? Money Podcast

On a recent episode of the Which? Money Podcast, we explained what high mortgage rates mean for people remortgaging or buying a home in the current climate.

You can listen to the episode below.