UK's lowest mortgage rate deal falls below 5% after interest rate pause

The lowdown on what banks are offering as the Bank of England announces hold on interest rates.

mortgage Elevated view of a street and housing in Archway
Mortgage costs have been steadily rising as the Bank of England has pushed interest rates up 14 consecutive times, but have now started to fall. Photo: Getty

The UK’s lowest mortgage rate deal has fallen below 5% after the Bank of England (BoE) announced that interest rates will be on hold at 5.25%.

The lowest mortgage rate available within a loan-to-value (LTV) bracket has dipped below 5% for the first time since June, for 75% and 60% LTV 5-year fixed mortgages, according to Rightmove.

After 14 consecutive rate increases, the BoE’s monetary policy committee on Thursday voted to pause interest rates in order to bring down high inflation.

The announcement to pause interest rates at the current rates will mean millions of households repaying mortgages are likely to be protected from further rises for now.

Read more: Interest rates staying 'higher for longer' means at least through 2026 for the Fed

Over the past year, mortgage lenders have had to significantly increase rates in response to the rate rises.

According to the BoE, three significant shocks drove high inflation — the COVID pandemic caused people to buy more goods than services, Russia's invasion of Ukraine hiked gas and food prices and food prices surged by 17% in June compared to a year ago.

So what does all this mean for mortgage rates?

What is a mortgage?

A mortgage is an agreed loan between a borrower and a lender to facilitate the purchase of a property like a home house or flat. It can also be used to borrow money against the value of a home a person already owns.

The lender has the right to take a property away if a homeowner fails to repay the money borrowed plus interest.

There are two basic types of mortgages — interest-only mortgages and repayment mortgages.

Read more: Inflation: Milk and bread prices fall, but it still costs more to eat at a restaurant

An interest-only mortgage means monthly payments only cover the interest, making the cost lower each month but it does not reduce the overall loan. This means at the end of the mortgage term the entire loan must be repaid in full.

Most lenders now require proof of a repayment plan and a significant deposit for interest-only mortgages, except for buy-to-let mortgages.

With a repayment mortgage, each payment reduces the amount you borrowed, but initially most goes towards paying interest. Over time, the interest portion decreases as payment reduces the loan.

The best mortgage rates

When starting a search for a mortgage "never just go to your bank for a cheap deal", advises Martin Lewis's website Money Savings Expert. Instead, use mortgage brokers to scour the market for a good deal that's appropriate to you.

Potential home-buyers should also consider consulting a financial advisor for personalised guidance. An ideal mortgage rate depends on your unique financial situation and goals, so staying vigilant in the ever-evolving market is important.

Read more: UK house prices remain subdued amid high interest rates and summer holidays

From working out a budget to preparing paperwork, consumer group Uswitch offers advice on whether now is the right time to apply for a mortgage, and the steps needed get a mortgage loan approved.

Here's a list of the best mortgage rates on the market according to Uswitch:

Best rates on 60% mortgages

Two-year fix initial rate

  • Nationwide: 5.74%

  • Virgin Money - 5.45% (8.9% APRC)

  • Coventry BS - 5.53% (7.4% APRC)

  • NatWest - 5.54% (7.7% APRC)

  • NatWest - 5.57% (7.7% APRC)

Five-year fix initial rate

  • Virgin Money - 4.97% (7.6% APRC)

  • Yorkshire Building Society - 4.99% (6.84% APRC

  • NatWest - 4.99% (6.8% APRC)

  • Coventry BS - 5% (6.6% APRC)

Best rates on 85% mortgages

Two-year fix initial rate

  • Virgin Money - 5.79% (9% APRC)

  • Yorkshire Building Society - 5.81% (7.21% APRC)

  • MPowered Mortgages - 5.81% (8.6% APRC)

  • NatWest - 5.83% (7.7% APRC)

Five-year fix initial rate

  • NatWest - 5.17% (6.9% APRC)

  • Virgin Money - 5.2% (7.7% APRC)

  • NatWest - 5.22% (6.9% APRC)

  • Yorkshire Building Society - 5.24% (6.95% APRC)

Best rates on 90% mortgages

Two-year fix initial rate

  • Virgin Money - 5.85% (9% APRC)

  • Accord - 5.96% (7.33% APRC)

  • Yorkshire Building Society - 5.97% (7.25% APRC)

  • HSBC - 5.99% (7.1% APRC)

Five-year fix initial rate

  • Accord - 5.38% (7.12% APRC)

  • NatWest - 5.39% (7% APRC)

  • Yorkshire Building Society - 5.4% (7.03% APRC)

  • HSBC - 5.41% (6.6% APRC)

Best rates on 95% mortgages

Two-year fix initial rates

  • Yorkshire Building Society - 6.19% (7.3% APRC)

  • Skipton BS - 6.39% (6.9% APRC)

  • Nationwide BS - 6.44% (8% APRC)

  • Skipton BS - 6.44% (6.8% APRC)

Five-year fix initial rates

  • Accord - 5.64% (7.23% APRC)

  • Skipton BS - 5.69% (6.6% APRC)

  • Yorkshire Building Society - 5.69% (7.16% APRC)

  • Accord - 5.73% (7.27% APRC)

Watch: How much money do I need to buy a house?

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