Mortgages and interest rates in 2021


In 2020, the mortgage market, like everything else, was heavily affected by the COVID crisis. At the start, lenders worried about the prospect of defaults and negative equity, began withdrawing their high LTV mortgages, squeezing many first-time buyers (FTBs) out of the market. The Stamp Duty holiday, however, ensured house prices remained stable and there were high levels of demand for those already on the property ladder, as they sought larger, more spacious homes.

For those with larger deposits, mortgage rates did come down, slightly, although the reduction in the base rate made little discernible difference. The average 5 year fixed rate mortgage ended the year at 2.69%, down from 2.74% in December 2019. The average 2 year rate actually rose, up from 2.45% to 2.49% over the same period. The standard variable rate fell from 4.89% to 4.41%.

So what about 2021? Things are already looking up for FTBs, with the slow return of 90% LTV mortgages. The government is keen to keep the base rate low in order to support our economic recovery and this should prove easier with the Brexit deal finally concluded, as it will help keep inflationary pressure low. There is even some speculation the base rate might go below zero and the MPC (Monetary Policy Committee) has been tasked with looking into its implications for the wider economy.

If they do cut the base rate, mortgages are unlikely to come down much further, as lenders are already close to the limits of their profitability. Most commentators are predicting mortgage rates will continue to fall in 2021 but only by very small margins. The ongoing economic uncertainty means, though, that lenders are likely to remain cautious and their criteria tight, especially if the economy or unemployment situation takes a turn for the worse.


To give you an idea of current mortgage rates, below is a selection of this month’s best buys from



Two year fixed rates: 1.22% from Natwest. Product fee £995. 60% LTV.
1.22% from RBS. Product fee £995. 60% LTV.

Three year fixed rates: 1.65% from Leeds BS. Product fee £999. 60% LTV.
1.65% from Leeds BS. Product fee £999. 75% LTV.

Five year fixed rates: 1.35% from Virgin Money. Product fee £1,495. 65% LTV.
1.37% from Natwest. Product fee £995. 60% LTV.

Discounted variable: 1.45% For 2 years. From Cumberland BS. Product fee £1,999. 60% LTV.
1.52% For 2 years. From Beverley BS. Product fee £1,895. 65% LTV.



Best two year fixed rate: 1.44% from Leeds BS. Completion £1,999. 60% LTV.

Five year fixed rate: 1.87% from Virgin Money. Booking £1,995. 60% LTV.

Best two year variable rate: 1.95% for 2 years. from the Principality BS. Product fee £0. 75% LTV.


The information we provide is our personal opinion and should not be relied upon for financial advice. Should you need financial advice or guidance please contact an appropriate professional.