Bank of England finally cuts interest rates – but experts warn the days of cheap mortgages are over.

Last week saw a welcome interest rate cut, but analysts are warning this doesn’t mean mortgages will become more affordable. In fact, experts predict a new average interest rate of 4.5%.

This is especially important for those looking to buy a new home or remortgage in the coming months. With the ongoing cost of living crisis, choosing the right mortgage deal is more crucial than ever.

Fixed-Rate Deals – The Best Option in an Uncertain Market?

Around seven million out of 8.4 million UK homeowners have fixed-rate mortgages, meaning their monthly payments won’t change immediately. However, for new buyers, deciding whether to go for a fixed or variable rate is a big decision.

“I think most people will still choose to fix,” advises David Hollingworth from L&C Mortgages. This is because, despite the rate cut, mortgage interest rates are only just beginning to fall. The first sub-4% mortgage deals have just been launched.

Five-Year Fixes Now Cheaper Than Two-Year Deals

In a surprise twist, five-year fixed-rate deals have become cheaper than two-year fixes. Andrew Montlake from the mortgage broker Coreco suggests this could be a good opportunity for those seeking stability: “Don’t expect huge downward spirals [in interest rates],” he warns.

Rohit Kohli from The Mortgage Stop agrees, urging potential buyers to act quickly: “As demand increases, we may see house prices rise, potentially leading to a return to a seller’s market and making it harder to get on the property ladder.”

Homeowners on Variable Rates Face Payment Shocks

The news is less rosy for those coming to the end of their fixed-rate deals. A staggering 700,000 homeowners will soon be facing a significant jump in their monthly payments. Those who took out mortgages between 2019 and 2024 could see their interest rates climb from under 3% to a daunting average of 5.38%.

The average Standard Variable Rate (SVR) currently sits at a hefty 8.16%, according to Moneyfacts. David Hollingworth warns, “There’s a danger people will think that sitting on the SVR is a good thing to do,”

First-Time Buyer Boost as Nationwide Breaks the 4% Barrier

In a much-needed boost for first-time buyers, Nationwide has become the first lender to offer a mortgage rate below 4%. Nicholas Mendes, a mortgage expert at John Charcol, hails this as “fantastic news” and a “significant change in the mortgage landscape.”