The lowest fixed rate mortgage deals have dipped below 3.8 per cent - and there is an expectation that rates may fall slightly further.

Four of Britain's biggest mortgage lenders recently cut rates across their home loans to best buy levels.

Fixed rate mortgages pricing is most heavily influenced by where money markets expect interest rates to head in the future.

After holding the base rate in June, the Bank of England is currently expected to cut interest rates a further two times this year.

For the vast majority of households, a mortgage rate somewhere between 3.8 and 5 per cent should be achievable depending on the level of equity or size of deposit.

> Best mortgage rates calculator: Check the deals you could apply for 

Mortgage rates: what is happening

The Bank of England held base rate at 4.25 per cent on 19 June. Base rate has dropped by 1 percentage points since August when it was first cut from 5.25 per cent.

It's fair to say the mortgage market is somewhat more settled now. 

In 2023, a combination of base rate hikes and worries over inflation figures saw average two-year fixed mortgage rates reach a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates hit 6.35 per cent. 

However, mortgage rates still remain far higher than borrowers had enjoyed prior to the surge in 2022.

Little more than three years ago, the averages were hovering around 2.5 per cent for a five-year fix and 2.25 per cent for a two-year. 

In fact, as recently as October 2021, some of the lowest mortgage rates were under 1 per cent.

Will mortgage rates go down or up? 

Mortgage rates have begin falling again in response to movements in sonia swap rates in recent weeks.

The current expectation is that the Bank of England will cut interest rates two times before the end of the year to 3.75 per cent.

This expectation has fed through into Sonia swaps, an inter-bank lending rate which forecasts where mortgage rates will be in two or five years. Lenders use this to determine fixed-rate mortgage pricing.

As of 18 July, two-year swaps are at 3.65 per cent and five-year swaps were at 3.74 per cent.

These will need to fall further for fixed rate mortgages to see any further dramatic falls - but it is likely lenders will make cuts over the coming weeks as competition ramps up between them.

Mortgage broker Aaron Strutt of Trinity Financial thinks there is still room for rates to fall a little from here. 

'Mortgage lenders are still cutting their rates despite the higher inflation figures,' said Strutt. 

'Even with everything that's going on with the economy and global affairs it still seems like rates are heading down. 

'I would not bet against rates being closer to 3.5 per cent over the coming months, but as we have seen so many times before almost anything can happen. 

'If you get the chance to take a rate anywhere near 3.75 per cent you are doing very well.'

Inflation and mortgage rates spike

Mortgage rates first began to increase towards the end of 2021, when inflation started to rise, resulting in the Bank of England increasing base rate to try and combat it. 

The aftermath of the Covid lockdowns, combined with Russia's invasion of Ukraine in February 2022, triggered a huge inflation spike. Central banks were caught on the hop and rushed to try to rein this in with higher interest rates.

Mortgage rates accelerated after the Liz Truss-Kwasi Kwarteng mini-Budget in late September 2022, with its wave of unfunded tax cuts that unsettled bond markets.

After Truss resigned in October 2022, new Chancellor Jeremy Hunt reversed nearly all of the mini-Budget announcements. The markets calmed down and the cost of borrowing fell with mortgage rates dropping too. 

But following a fresh round of stubbornly high inflation figures in late spring 2023, markets began betting the base rate would peak at 6.5 per cent. This triggered a summer inflation panic and led to mortgage lenders whacking their rates up again.

Once the inflation worries subsided, interest rate expectations eased substantially but inflation proved stickier than expected in 2024 and the Bank of England ended up holding base rate at 5.25 per cent.

With inflation finally returning to its 2 per cent target, the Bank finally felt comfortable cutting rates to 5 per cent at its August 2024 meeting and then again in its November meeting.

Having held rates in December, it cut again in February and then again in May before opting to hold in June.

Inflation was 3.6 per cent in the 12 months to June, rising from 3.4 per cent in the 12 months to May, the latest ONS figures revealed. 

At 3.6 per cent, inflation still sits significantly higher than the Bank of England’s 2 per cent target and this could lead to MPC members refraining from rate cuts. 

Should you fix for two or five years? 

Britons face a tough choice over whether to fix their mortgage for two or five years.

In terms of rates there is barely any difference between them at present. 

The average five-year fix at 4.55 per cent and the average two-year fix at 4.57 per cent, according to Rightmove.

Not so long ago, there was a clear preference among borrowers for five-year fixed rates - but that now looks to be changing with borrowers split almost fifty-fifty in what they went for last year, according to UK Finance data.

Choosing what length to fix for depends on what you think may happen to interest rates but should importantly take more account of what your personal circumstances are.

Key factors include whether you may move soon, how much you prefer the security of fixed payments for longer and how well you could cope with a rise in mortgage bills.

Fixed rates of any length offer borrowers certainty over what their payments will be from month-to-month. 

Those opting for a shorter two-year fix are backing interest rates falling over the next couple of years, or at least staying steady, so that when it is time to remortgage their bills won't rise.

With five-year fixes borrowers are locking in to rates that they know won't change for longer, perhaps either because they believe rates may rise or because they prefer the security. Five-year fixes were hugely popular when rates were lower.

If rates continue to fall, a tracker mortgage without an early repayment charge could put borrowers in a position to take advantage.

However, for all the potential benefit, a tracker product will also leave people vulnerable to further base rate hikes, while also being more expensive than fixed rates at present.

Whatever the right type of mortgage for your circumstances, shopping around and speaking to a good mortgage broker is a wise move.

> Check the best mortgage rates based on your house price and loan size 

What are the best mortgage rates?

Bigger deposit mortgages

Five-year fixed rate mortgages 

Santander has a five-year fixed rate at 3.9 per cent with a £999 fee at 60 per cent loan to value. 

NatWest has a five-year fixed rate at 3.91 per cent with £1,495 fees at 60 per cent loan to value.

Two-year fixed rate mortgages 

Barclays has a 3.76 per cent two-year fixed rate deal with an £899 fee at 60 per cent loan-to-value. 

Halifx has a two-year fixed rate at 3.79 per cent with a £1,099 fee at 60 per cent loan to value.

Mid-range deposit mortgages

Five-year fixed rate mortgages 

Santander has a five-year fixed rate at 4.03 per cent with a £999 fee at 75 per cent loan to value. 

Barclays has a five-year fixed rate at 4.03 per cent with a £899 fee at 75 per cent loan to value. 

Two-year fixed rate mortgages       

Yorkshire Building Society has a two-year fixed rate at 3.92 per cent with a £995 fee at 75 per cent loan to value. 

Barclays has a two-year fixed rate at 3.93 per cent with a £899 fee at 75 per cent loan-to-value.

Low-deposit mortgages

Five-year fixed rate mortgages 

Virgin Money has a five-year fixed rate at 4.3 per cent with £995 fees at 90 per cent loan to value.

Santander has a five-year fixed rate at 4.3 per cent with £749 fees at 90 per cent loan to value. 

Two-year fixed rate mortgages 

Santander has a two-year fixed rate at 4.3 per cent with £749 fees at 90 per cent loan to value. 

Virgin Money has a two-year fixed rate at 4.32 per cent with a £995 fee at 90 per cent loan to value.

Tracker and discount rate mortgages 

The big advantage to a tracker mortgage is flexibility. The downside is they are currently more expensive, so it will take a few more interest rate cuts before borrowers starting beating the fixed rate deals.

The can sometimes be the case with discount rate mortgages, which track a certain level below the lenders' standard variable rate.  

A fixed-rate mortgage will almost inevitably carry early repayment charges, meaning you will be limited as to how much you can overpay, or face potentially thousands of pounds in fees if you opt to leave before the initial deal period is up.

You should be able to take a fixed mortgage with you if you move, as most are portable, but there is no guarantee your new property will be eligible or you may even have a gap between ownership.

Many tracker deals have no early repayment charges, which means you can up sticks whenever you want - and that suits some people.

Make sure you stress test yourself against a sharper rise in base rate than is forecast.