The UK mortgage market continues to show signs of recovery, with average two- and five-year fixed rates both falling to 5.52% in June, according to data from Moneyfacts. This marks the sharpest monthly decline since October 2024, with the two-year rate dropping 16 basis points and the five-year rate falling 11 basis points. However, the recovery remains uneven, as the number of high loan-to-value products for buyers with only a 5% deposit has shrunk.
Product Availability Improves but High LTV Lags
The total number of mortgage products available in the UK edged up 0.6% to 7,177 in July, extending a three-month upward trend from a low of 6,201 in April. However, the number of 95% loan-to-value deals fell 3.4% to 450, down from 466 in June. In contrast, 90% LTV products rose 2.5% to 913, and 60% LTV deals increased 3.1% to 835. This divergence highlights lenders' preference for borrowers with larger deposits, potentially sidelining first-time buyers who rely on high LTV mortgages.
Rate Cuts Provide Some Relief
The decline in swap rates, which underpin fixed-rate mortgage pricing, has enabled lenders to cut rates. The Bank of England's base rate remains at 3.75% ahead of its July 30 meeting. For a typical £250,000 repayment mortgage over 25 years, the two-year fixed rate reduction translates to a monthly saving of about £24, bringing the payment to £1,538, while the five-year fix saves around £16 per month. Despite these savings, affordability remains stretched for many households.
Market Recovery Still Fragile
April's market turbulence saw available products drop to 6,201, with 1,283 deals withdrawn. Since then, 976 have returned, representing a 76% recovery rate. However, the market still has 307 fewer products than before the disruption, a 4.1% shortfall. Lenders are competing most aggressively for borrowers with larger deposits. At 60% LTV, the average two-year fixed rate fell 20 basis points to 4.97%, while at 90% LTV it dropped 18 basis points to 5.76%. For 95% LTV deals, the average rate only slipped 10 basis points to 6.13%, and product numbers contracted.
Expert Views and Potential Headwinds
Rachel Springall, finance expert at Moneyfacts, noted that fixed mortgage rates are falling at their fastest pace in nearly two years, offering borrowers some respite. She cautioned that further rate cuts could be delayed if geopolitical tensions resurface. Ian Harris, President of Propertymark, suggested that lower mortgage rates should provide more flexibility for buyers and sellers. However, the market's fragility is underscored by the short average shelf life of mortgage deals—just 14 days—and the looming June inflation data due on July 22, just eight days before the Bank of England's next decision. Hotter inflation or renewed geopolitical stress could push swap rates higher before borrowers can lock in.
US Mortgage Rates Also Decline
Across the Atlantic, average top-tier US 30-year fixed mortgage rates fell 11 basis points over two sessions to 6.64%, their lowest in over a week, according to Mortgage News Daily. The decline followed June consumer prices slipping 0.4% month-over-month and producer prices falling 0.3%, as reported by the US Bureau of Labor Statistics. For a $400,000 loan over 30 years, the rate drop translates to a monthly saving of about $29.
Outlook
Investors are closely watching whether lenders will reintroduce 95% LTV products, as a broader housing recovery may depend on first-time buyer participation. While lower rates and more products for higher-deposit borrowers support credit quality, the lack of high LTV options could curb home sales. The coming weeks, with key economic data and the Bank of England meeting, will be pivotal for the mortgage market's trajectory.
