Interest rates have dropped for the first time in almost three years, and the change could be worth up to £4,000 to homeowners.
Financial experts say the shift offers a rare chance to cut costs and shorten mortgage terms.
Homeowners are being urged to keep their mortgage payments at the same level despite a drop in interest rates, as small overpayments could deliver substantial long-term savings.
Even an extra £20 a month could save more than £4,000 in interest over the life of a mortgage and cut the repayment term by over a year, according to financial experts.
Jinesh Vohra, chief executive of mortgage overpayment app Sprive said: "Overpaying is one of the most powerful ways to become mortgage-free faster. Even small, regular overpayments can knock years off your term and save thousands – all without stretching your budget."
Average two-year fixed homeowner mortgage rates have now fallen below five per cent for the first time since the market turmoil triggered by Liz Truss’s September 2022 fiscal announcement.
Data from Moneyfacts shows the average rate dropped to 4.99 per cent on Wednesday, down from five per cet the day before. Back on September 29, 2022, rates stood at 4.87 per cent.
The fall follows the Bank of England’s decision to lower its base rate from 4.25 per cent to four per cent, ending almost three years of elevated borrowing costs.
Interest rates have dropped for the first time in almost three years
| PAMr Vohra explained the rate cut could give borrowers a valuable opportunity to get ahead.
He said: "Someone with a £150,000 mortgage at 4.25 per cent over 25 years currently pays around £812 a month. The 0.25 per cent cut brings this down to £791 - a saving of £21 a month, or £252 a year."
Keeping payments at £812 and using the £21 saving for overpayments could save £4,280 in interest and clear the mortgage 13 months early, Vohra’s calculations show.
What the Bank of England rate cut means for your mortgage | GETTYAround 1.6 million fixed-rate mortgages will expire in 2025, with nearly 900,000 ending in the second half of the year, UK Finance figures show.
Borrowers on variable-rate deals - about 17 per cent of all mortgage holders - have already seen monthly payments fall following the base rate cut.
With two-year fixed rates now back below five per cent, many homeowners have a chance to refinance on more favourable terms.
Small overpayments could deliver substantial long-term savings
| GETTYThose securing new fixed-rate agreements could potentially achieve similar savings to variable-rate customers, creating additional scope for overpayment strategies.
Adam French, head of news at Moneyfactscompare.co.uk, described the sub-five per cent milestone as "a symbolic turning point" whilst cautioning that more significant reductions may prove elusive.
He noted that inflation is projected to reach four per cent during autumn and remain above the two per cent target until 2027 or later, suggesting base rates will likely stabilise near current levels for an extended period.