Scottish Housing Market Review Q3 2025

6. Mortgage Interest Rates

After a tightening cycle which took Bank Rate from 0.1% prior to the December 2021 Monetary Policy Committee (MPC) meeting to 5.25% following the August 2023 meeting, its highest level since 2008, the MPC held Bank Rate steady for the following 12 months. The MPC then cut Bank Rate in increments of 0.25% points at their meetings in August 2024, November 2024, February 2025, May 2025 and August 2025, which took it to 4.00%, where it was maintained at the September 2025 MPC meeting. The next MPC meeting is scheduled for 6 November 2025.

Chart 6.1 and Chart 6.2 shows the effective (or average) interest rates on new mortgage advances and outstanding mortgage balances in the UK. [Source: Bank of England]

Reflecting successive cuts in Bank Rate since August 2024, over the year to August 2025, the average interest rate for new floating-rate mortgage advances fell by 1.0% point to 4.80%, while for fixed-rate mortgages the effective rate fell by 0.5% points to 4.22%. Although the downward trend in average interest rates on new mortgages continues, average interest rates are still significantly above the rates in December 2021 when the most recent tightening cycle began.

While the average rate on outstanding variable-rate mortgages has also fallen over the last year in response to the cuts in Bank Rate (by 0.99% points to 5.72%), the average rate on outstanding fixed-rate mortgages has continued to trend up (by 0.36% points to 3.71%) as mortgages which reach the end of their fixed period are refinanced at higher rates – this applies particularly to mortgages which had longer-duration fixes.

Effective monthly interest rates on mortgage lending to households: UK (Data as at month-end, to August 2025)

Source: Bank of England

Bank of England data on advertised mortgage rates (as opposed to data in Chart 6.1 which is based on interest actually paid) also shows that advertised mortgage rates are significantly off the peaks reached during the current interest-rate cycle: the average advertised two-year fixed rate for a 75% LTV mortgage has fallen from its post-pandemic peak of 6.22% in July 2023 to 4.13% in August 2025 (down 2.09% points), while the average advertised rate for a 90% LTV mortgage has fallen from its post-pandemic peak of 6.57% in August 2023 to 4.56% in August 2025 (down 2.01% points). The spread between the two LTV values was 0.43% points in August 2025.

Source: Bank of England

Data from the Moneyfacts Treasury Report, also relating to advertised rates but averaged across LTVs,^[3] shows that the average 2-year fixed-rate mortgage interest rate across LTVs decreased from 5.56% in September 2024 to 4.96% in September 2025. Meanwhile, over the same time period, the average interest rate for a 5-year fix fell from 5.20% to 5.00%. For the first time since September 2022, the average 2-year fixed rate mortgage sat below the 5-year equivalent.

Chart 6.4 shows that the vast majority of regulated^[4] mortgages are on fixed rates. The share of gross advances on fixed rates in Q2 2025 was 93%, while the share of outstanding balances on fixed rates in Q2 2025 was 90%. (Source: FCA).

Source: FCA