Homeowners are being warned that challenges remain even as mortgage rates show signs of easing.
The Bank of England says many people coming to the end of their current deal this year will still face higher repayments than before.
In its latest Monetary Policy Report, the Bank explained that households looking to refinance are likely to encounter steeper monthly costs compared with their previous arrangements.
Fresh data from the Bank’s Money and Credit - July 2025 figures shows the average rate on newly arranged mortgages fell to 4.28 per cent in July, down from 4.34 per cent in June.
This marks the fifth consecutive monthly drop, signalling that new borrowers are slowly seeing costs fall.
But existing homeowners have not seen the same relief. The typical rate across all active mortgages stayed at 3.88 per cent, unchanged from the previous month.
Borrowing costs also remain much higher than before the pandemic. Robert Gardner, Nationwide's chief economist, noted: "Combined with the fact that mortgage costs are more than three times the levels prevailing in the wake of the pandemic, this means that the cost of servicing a mortgage is also a barrier for many."
He explained that first-time purchasers earning average wages would dedicate approximately 35 per cent of their net income to mortgage repayments, substantially exceeding the historical norm of 30 per cent.
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| GETTYThe July report also showed signs of activity returning to the market. Approvals for house purchases rose by 800 to 65,400, while remortgaging approvals fell by 2,700 to 38,900.
Nathan Emerson, CEO of Propertymark, remarked: "Considering the many twists and turns within the wider economy currently, it's extremely positive to see a further uplift in mortgage approvals."
He added: "Hopefully, now that the Bank of England has taken the call to cut the base rate by a further quarter per cent, we should see lenders bringing additional levels of competition to the marketplace."
Refinancing remains a major issue, with 900,000 fixed-rate deals due to expire in the second half of 2025, according to UK Finance
| GETTYRefinancing remains a major issue, with 900,000 fixed-rate deals due to expire in the second half of 2025, according to UK Finance.
But there are glimmers of hope: five-year fixed mortgage rates dipped below five per cent last week for the first time since May 2023, hitting 4.99 per cent, while two-year fixed rates slipped to 4.97 per cent, according to Moneyfacts.
Adam French, head of news at Moneyfacts, said the latest data was "more welcome news for borrowers" and said it showed lenders were "competing more aggressively".
Five-year fixed mortgage rates dipped below five per cent last week for the first time since May 2023
| GETTYCommenting on the five-year mortgage rate drop, Mr French said: "The slow and steady fall in the cost of borrowing over the last year combined with strong average earnings growth has helped to marginally boost affordability for many homeowners and homebuyers."
However, he thinks the latest inflation reading of 3.8 per cent has effectively stopped the chance of seeing another base rate cut in 2025.
"As a result, a few modest mortgage rate reductions are the best borrowers can probably hope for in the short term as lenders adjust to prospect of higher rates for longer," Mr French added.