For the first time in over two years, the average rate on a five-year fixed mortgage in the UK has dipped below the 5% threshold, marking a significant moment for borrowers, lenders, and the broader housing market. According to Moneyfacts, a leading financial information service, the average five-year fixed rate reached 4.99% on August 21, 2025, down from 5% just the day before. This milestone hasn’t been seen since May 3, 2023, and is widely being described as a “symbolic turning point” for the industry.
The drop in rates is more than just a number—it signals a shift in sentiment across the mortgage landscape. As reported by BBC, even a modest reduction can have an outsized psychological effect, encouraging potential buyers and prompting lenders to compete more aggressively for business. Adam French, head of news at Moneyfacts, emphasized, “The slow and steady fall in the cost of borrowing over the last year combined with strong average earnings growth has helped to marginally boost affordability for many homeowners and homebuyers.”
The average two-year fixed mortgage rate has followed a similar trajectory, falling to 4.97% on August 21, 2025, from 4.98% the previous day. This drop below 5% last week marked the first time since the tumultuous days following former Prime Minister Liz Truss’s so-called mini-budget in September 2022. That fiscal event, which included unfunded spending and tax cuts, sent government borrowing costs—and by extension, mortgage rates—soaring. In the aftermath, rates for a typical two-year deal spiked to as high as 6% in late 2022 and again in mid-2023, before gradually receding.
What’s driving this renewed optimism? A confluence of factors, but central among them are recent decisions by the Bank of England. Earlier in August 2025, the central bank reduced its base interest rate from 4.25% to 4%—the third cut this year. According to The Guardian, economists predict that the base rate could drop further, potentially reaching 3.5% before stabilizing.
However, the path ahead isn’t entirely clear. The latest inflation reading of 3.8% has muddied expectations for additional rate cuts in the near term. As Adam French of Moneyfacts explained, “A few modest mortgage rate reductions are the best borrowers can probably hope for in the short term as lenders adjust to the prospect of higher rates for longer.” Traders, according to data from the London Stock Exchange Group, now anticipate no further base rate cuts until at least February 2026.
Despite these uncertainties, the mortgage market is showing signs of resilience and adaptability. The Intermediary Mortgage Lenders Association’s (IMLA) latest Mortgage Market Tracker report revealed that mortgage intermediaries remained confident in their businesses during the second quarter of 2025, even after a softening in market activity following the end of the Stamp Duty holiday in April. Bank of England figures, however, recorded a notable decline in gross secured lending—from £76 billion in the first quarter of 2025 to £58 billion in the second quarter—reflecting both the front-loading of business earlier in the year and ongoing economic pressures.
Kate Davies, executive director of IMLA, put it succinctly: “As expected, Q2’s figures reflect the front loading of mortgage business in Q1 this year caused by the end of the Stamp Duty holiday in April. They also reflect a market adjusting to tighter than anticipated economic conditions, given the slow pace of Bank Base Rate cuts and continued pressure on household finances. However, intermediaries continue to demonstrate resilience and confidence in their ability to deliver.”
Optimism is also evident among mortgage brokers. A survey by Nottingham Building Society, which canvassed 500 mortgage brokers, found that 83% felt more positive about the state of the mortgage market compared to six months earlier. Yet, this optimism is tempered by concerns about the relevance of current mortgage products. Nearly three-quarters (74%) of brokers said that existing products have failed to keep pace with the changing financial realities of UK borrowers, and over half (52%) criticized lenders for being too slow to adapt to evolving customer needs. Greg Went, head of mortgage product and proposition at Nottingham Building Society, remarked, “It is encouraging to see signs of confidence returning to the mortgage market. Coupled with the recent Bank of England Base Rate cut, and the potential for further cuts this year, this could offer further relief for some borrowers and stimulate more activity across the sector. But the message from brokers is clear: lenders must ensure they keep pace with changing lifestyles. People’s lives and finances have changed, from income patterns to household structures, and mortgage products need to remain suitable.”
On the ground, borrowers have more choices than ever. The number of residential mortgage products available hit 7,031 on August 21, 2025, up from 6,992 just the previous working day, according to Moneyfacts. Peter Stimson, director of mortgages at MPowered, cautioned that “average rates can be a bit misleading,” noting that “much lower rates are available. If you have a sizable deposit or have built up equity in your home, you could well get a fixed interest rate below 4%—irrespective of whether you want to fix for two, three or five years.”
Still, the market faces looming challenges. UK Finance, the banking industry group, estimates that 900,000 fixed-rate mortgage deals are set to expire in the second half of 2025. This wave of re-mortgaging could put further pressure on lenders to offer competitive rates and innovative products, especially as borrowers seek to navigate a landscape that still features higher rates than those seen before September 2022.
Meanwhile, the broader housing market is experiencing its own shifts. Official figures from the Office for National Statistics show that UK house price inflation accelerated to 3.7% in the 12 months to June 2025, with the average house price reaching £269,000. At the same time, average monthly private rents climbed by 5.9% to £1,343 in the 12 months to July 2025, further squeezing household budgets.
Despite these pressures, the buy-to-let sector remains “reassuringly buoyant,” according to IMLA, even as landlords brace for new legislative changes under the Renters’ Rights Bill. The interplay between rising rents, evolving regulations, and changing mortgage rates will likely continue to shape the market in the months ahead.
For now, the symbolic dip below 5% for five-year fixed mortgage rates stands as a beacon for borrowers—one that suggests, at least for the moment, a market in transition, with lenders and consumers alike searching for stability and opportunity amid ongoing economic uncertainty.
