Homeowners paying £1,000 a year more as mortgage rates fail to fall in line with interest rates

EMBARGO: 22:30 Thursday 7 August

Lenders are treating mortgage holders as a “cash cow” the Liberal Democrats have said, after House of Commons Library research commissioned by the party revealed mortgage rates have fallen at a significantly slower rate than the fall in the Bank of England base rate over the past year costing homeowners over £1,000 a year.

The analysis found that between July 2024 and July 2025 the Bank of England base rate has fallen by 19%, from 5.25% to 4.25%. Yet, over that period mortgage rates offered by banks have fallen at a far slower pace, by 13% for 2 year fixed rates and just 4% for 5 year fixed rates.

It means that for new mortgages the estimated average monthly payment has fallen by just £90 a month to £1,189 from £1,279 for two year fixed rates and by only £26 a month from £1,204 to £1,178 for five year fixed rates.

The Library’s research revealed that if instead two and five-year fixed mortgage rates had fallen by 19%, in line with the base rate, then homeowners would be paying a further £41 and £87 a month less respectively. It means that mortgage holders would be saving £492 a year on a two year fixed rate and £1,044 a year on a five year fixed rate mortgage.

It comes as the Bank of England is widely expected to cut interest rates at noon on Thursday (7th August). The Liberal Democrats said that the Chancellor needed to call in the big banks over their failure to cut mortgage rates despite interest rates falling.

The party also said that lenders were treating mortgage holders as a “cash cow” in the midst of a cost of living crisis and called on the Government to reverse the Conservative party’s cuts to the bank surcharge which could raise around £4 billion a year. The party is also urging the Government to boost the economy by securing a much better trade deal with Europe, which will improve the country’s economic prospects and help take further pressure off lenders to cut mortgage rates.

Last month, the Lib Dems called on the Government to be far more ambitious on addressing spiralling household costs by cutting energy bills in half over the next decade.

Liberal Democrat Treasury spokesperson, Daisy Cooper MP said:

“Mortgage lenders have used homeowners as a cash cow in the midst of a cost of living crisis. By failing to cut mortgage rates in line with interest rates they are leaving millions of families out of pocket and worried about how they will keep a roof over their head.

“The Chancellor needs to get a grip, call in lenders to explain to them that many homeowners are already on the brink and struggling to keep the roof over their heads. Reeves also needs to reverse the Conservatives’ tax cuts for the big banks as they rake in billions in profit with these sky high mortgage rates.

“Labour has been far too timid and wrong-footed in tackling the cost of living crisis. Their ‘jobs tax’ is hurting pay packets, mortgage rates are crippling homeowners, and spiralling energy bills leave people wondering how they will put food on the table.

“The Government needs to listen to the Liberal Democrats and take the bold action required to bring bills down. That should start by listening to Ed Davey’s proposals to cut energy bills in half over the next decade.”

ENDS

Notes to Editors:

The research by the House of Commons Library can be found here.

Notes from the Library:

The alternative scenario sees rates fall by 19%, in line with the change in the Bank of England base rate. Please note that mortgage rates are also influenced by other factors beyond the base rate, in particular changes in expectations of where rates are heading.

The Library has used a mean average figure for the mortgage advance. This is likely to be above the typical (median) amount, as it will be distorted by a relatively small number of high values. This will increase the monthly mortgage payment values beyond what might be typical.

Calculation of average monthly mortgage is approximate, based on a repayment mortgage at the rate, term and length specified with no associated fees.

Further information on the Liberal Democrats proposals to cut energy bills in half by 2035 can be found here.