Mortgage rates fall at fastest pace in 21 months but experts warn war could stop the trend
Fixed mortgage rates fell at the fastest rate since October 2024 as lenders cut prices that rose at the start of the Iran war.
As the industry grapples with rapidly changing outlooks for inflation and borrowing costs, the number of mortgage deal options has continued to grow, with the average number of days on market remaining at 14.
While the average two-year residential fixed interest rate was 4.84 percent at the end of February, it rose to 5.9 percent at the beginning of April due to high uncertainty around the Strait of Hormuz.
The downturn had begun later that month, with Moneyfacts data showing fixed rates fell for a second consecutive month in June, marking the biggest monthly falls since October 2024. Average two-year adjustments fell 0.16 percent, while five-year adjustments fell 0.11 percent, both for an average of 5.52 percent.
This was the lowest point since the beginning of March for both two- and five-year deals. In late April, Barclays brought back its first sub-4 per cent mortgage deal after seeing such offers withdrawn across the market.
Further data showed that the average rate for new mortgages had also fallen to 5.47 per cent, although in March this year the figure was just 4.9 per cent – and the total number of transactions in the mortgage market, although higher in June than in May, remained more than 300 lower than in March at 7,177.
Rachel Springall, finance expert at Moneyfacts, said: “Borrowers will breathe a sigh of relief to see fixed mortgages fall at their fastest rate for almost two years, coupled with a period of calmer crop losses and a rise in selection. “Lenders responded positively to falling swap rates in June, seeing significant falls in average two- and five-year fixed rates of 0.16% and 0.11% respectively, both settling at 5.52 per cent.
“The last cuts of a similar scale occurred in October 2024, when rates fell by 0.16 percent and 0.13 percent respectively.
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Generally, two-year fixes are priced lower than five-year fixes, but at the height of Iran war uncertainty earlier this year, the scenario was reversed, with two-year deals more expensive due to rising short-term borrowing costs due to inflation fears.
This has only now reversed – Moneyfacts data as of July 13 shows the 2-year average correction at 5.46 per cent, while the 5-year average correction is at 5.48 per cent.
But Ms Springall warned that the resumption of strikes between the US and Iran meant mortgage rate cuts could slow or even reverse once again.
“It has been three months since the reversal of fixed interest rates, where the two-year fixed rate was higher than its five-year counterpart. This has begun to ease, so it is expected that rates will begin to return to a more traditional pricing structure.”
“However, this positive trend may be thrown off course as the re-escalation in geopolitical tensions slows the pace of mortgage interest rate cuts,” he added.
Propertymark CEO Nathan Emerson added that current political uncertainty, combined with incoming economic data, could make lenders hesitant to cut interest rates further until there is more certainty.
“Any reduction in mortgage interest rates should help increase flexibility for both buyers and sellers and could perhaps be a sign that the UK housing market is recovering from the worst mortgage rate rises witnessed in recent years,” he said.
“However, with inflation figures due next week, all eyes will likely be on the Bank of England and its next base rate decision at the end of the month. There is speculation that we could see a rate hike in the coming months, and this could change sentiment among lenders as the year progresses.”
“Additionally, the appointment of a new prime minister could create uncertainty among buyers and sellers due to possible changes to housing policy going forward.
“So while today’s news is welcome, it is important to consider the wider economic picture and the many different scenarios that may emerge in the coming weeks and months.”
Emma Jones, MD of Whenthebanksaysno.co.uk, added that recent ups and downs are a reminder that those looking for a new mortgage deal need to get the best rate possible as soon as possible. “Mortgage rates have been falling in recent weeks but conflict in the Middle East is escalating once again and borrowers need to keep this on their radar,” Ms Jones said.
“2026 has been a textbook example of how quickly mortgage rates can respond to geopolitical events and why the continued decline in interest rates should not be underestimated.”
In most cases, people renewing their mortgage deal can keep their current deal for six months and switch to a better deal if one comes along before the renewal takes effect.
