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With interest rates falling, it could be time to make some savings on your monthly mortgage payment. And with thousands of deals available, understanding how UK mortgage rates work across the different products will help you find the one that’s right for you.
One of the key influences on mortgage rates is the Bank of England base rate. The Bank’s Monetary Policy Committee (MPC), which sets interest rates, has cut them twice this year.
The Bank of England interest rate has fallen from 4.75% at the beginning of the year to 4.25% (as of June 2025), which means your mortgage payments could be shrinking as a result.
Mortgage rates are the interest rates charged by lenders when you borrow money to buy a property. Mortgage rates are influenced by many factors, particularly the Bank of England’s base rate.
Shaving 0.5 percentage points off the mortgage rate on a £100,000 loan would save you around £42 a month if it was an interest-only mortgage or £28 a month on a 25 year repayment term.
Over time – and where you’re able to remortgage to take advantage of an even lower rate – these monthly savings can really mount up.
Richard Dana, chief executive of specialist mortgage broker Tembo Money, which partners with Saga to provide a mortgage advice service, gives the example of a couple with a £200,000 mortgage looking for a five-year fixed rate deal. “Going for a rate of 4% instead of 5% would save around £10,000 in interest over the five years, or approximately £165 a month,” he explains.
It's not just the base rate that influences how much your lender will charge you. Broader economic data such as inflation, wage growth and even long-term views on the economy can feed into the rates set by a lender.
A lender’s own circumstances and targets will influence the rate they charge, says Ella Mower, senior content editor at Moneyfactscompare.co.uk. “Their risk appetite, funding levels and how competitive they want to be will affect where a lender sets its mortgage rates.”
While fierce competition in the mortgage market means it's a good time to reach for the comparison tables, exactly how much you might save – and when – will depend on factors such as the size of your loan and the type of mortgage you have.
A standard variable rate mortgage (SVR) is the standard mortgage product that you’ll be switched to once another mortgage deal ends. There are no penalties or tie-ins but rates tend to be higher than fixed deals. As a result, only 6% of residential mortgage borrowers are on standard variable rates.
UK Finance’s figures also show the average SVR rate was 7.38% on 8 May 2025, with the average borrower having an outstanding balance of £66,576, which is lower than on tracker (£139,042) or fixed rate (£167,691) mortgages.
Rates are influenced by the broad set of economic data, but Mower cautions against expecting cheaper mortgage payments if there’s a base rate cut. “An SVR can go up or down at the lender’s discretion and won’t necessarily follow the exact changes in the base rate.”
Another small part of the overall market, accounting for 7% of all residential mortgages according to UK Finance, tracker mortgages follow movements in the Bank of England’s base rate. This means that if there’s a cut, it’ll be reflected instantly in your monthly mortgage payment.
Products can be taken out for a fixed period, typically two or five years, or for the lifetime of the loan.
Tracker mortgages are popular when the base rate is falling, explains Graham Sellar, head of intermediary channels at Santander. “There’s no certainty over what you’ll pay each month but some borrowers like the fact that any cuts will be passed on.”
While the average rate across all existing tracker mortgages was 5.93% in May, according to UK Finance, new two-year tracker deals averaged around 4.90% according to Moneyfacts (as of 22 May 2025).
While reductions in the base rate can be passed on to borrowers with variable rate products such as tracker and SVR mortgages, anyone with a fixed-rate mortgage will see no changes to their monthly payments.
Although it may feel like you’re missing out if the base rate falls, the certainty of a fixed monthly repayment is very popular with the British public.
UK Finance data shows that 7.1 million residential mortgages – equivalent to 85% of the market – are fixed-rate deals with the average interest rate 3.65%.
This average reflects how bumpy the fixed-rate market has been over the past five years, with the base rate varying from 0.1% to 5.25% over this period.
Currently, the best deals on the market are below 4% for either a two or five-year fix. The best deals are generally for those who need to borrow a maximum of 60% loan-to-value.
Fixed-rate mortgages don’t directly follow BoE base rate cuts, as they also price in market expectations of future interest rates and inflation.
If you’d like to see if you could save more money on your mortgage, or you’re one of the 1.6 million borrowers with a fixed-rate deal finishing this year, then it could be time to check out what’s available.
Even if your current fixed deal isn’t ending soon, it’s worth comparing rates and checking what early repayment charges you might need to pay, in order to decide whether a new, lower rate would save you money overall.
While seeking out the lowest rate may seem sensible, Dana says borrowers should weigh up the whole deal. “Mortgage fees and incentives can significantly impact the overall cost of the mortgage,” he explains. “A lender with a lower headline-grabbing interest rate might add a larger fee, which could mean a provider with a higher rate would work out cheaper.”
Always remember that your home could be repossessed if you don’t keep up with repayments.
How much equity, or deposit, you have could also affect the deal you get. Lenders offer better deals if you have a lower loan-to-value figure. With house prices continuing to rise, this may feel easier to achieve.
Lenders tend to price their mortgage deals by loan-to-value (LTV), offering better rates the more equity you have – though once the LTV is below 60% it’s unlikely to fall further. The thresholds tend to be at 5% intervals. Sellar explains: “If you’re looking to borrow 62% of your property’s value, you’ll be able to secure a lower interest rate if you can reduce this to 60%. Depending on how much you want to borrow, this could save you a further £20 to £30 a month.”
Your attitude to money and risk also plays a major part in your mortgage decision. While a fixed rate gives certainty and peace of mind, a tracker or variable rate product allows you to take advantage of any future interest rate cuts.
Rachel Geddes, strategic lender relationship director at Mortgage Advice Bureau, suggests taking advice. “A broker can talk you through your available options, ensuring you make the most informed decision for your needs.”
A whole-of-market mortgage broker can be particularly useful, not just for finding the best rates but also for navigating lender criteria, especially if your circumstances are complex. They can also often access deals not available directly to consumers.
Ultimately, the best mortgage for you comes down to what you want from your monthly repayments as well as your future financial and personal goals.
With mortgage rates on a downward trend, it’s a promising time for homeowners and potential buyers to secure more affordable borrowing. By understanding the different types of rates, considering all associated fees, and potentially seeking expert advice, you can navigate the market effectively and make significant savings on your monthly payments.
Provided by Tembo
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