Will mortgage rates go down in 2025?

What happened to mortgage rates in 2024?

2024’s mortgage market performance can be split roughly into three parts. The year began with interest rates coming down fairly quickly, with the expectation that, as inflation fell aggressively, the Bank of England would follow suit with the base rate. Some 3% rates were available in January - a marked difference to those we’d experienced the year before.   

By mid-March, it became apparent that inflation would stay higher for longer, and the cost of borrowing rose accordingly. As a result, we didn’t see the base rate start to come down again until September. From this point onwards, mortgage rates slowly became available at 4% again, and in some cases, 3%. Nevertheless, rates remained much higher than they were before the mini budget - leaving many acclimatising to their mortgage payments being much more than they were previously. 

This has left many budding and current homeowners asking that all-important question: will mortgage rates go down in 2025?

What will the interest rate be in 2025?

We’ve started to see a small decline in interest rates as we head into 2025. While we cannot ever truly predict the mortgage market, it’s looking like we may see several base rate reductions from the Bank of England in 2025.

These reductions may take time, given the cautious approach taken by the Bank so far, but it’s still a step in the right direction. Further holds also place us in a more favourable situation compared to 2023, heralding what is looking like a much more positive year for homebuyers. 

What is the predicted UK inflation rate for 2025?

Economic growth in the UK has been better than forecasted, and inflation is in a stronger place than it was previously, subject to some fluctuation. Given the planned rise in gas and electricity costs for the new financial year, inflation is likely to worsen slightly before it gets improves.

While it has been somewhat sticky in recent months, and may continue to be so next year, inflation is still trending downward compared to earlier in the year. Should the increase in inflation prove to be temporary, and wage pressures continue to ease, mortgage rates can be expected to fall accordingly towards 4% during 2025.¹

Other factors to consider

We’re currently living in a geopolitically challenged world, where various factors outside of our direct control can change the state of the UK’s economy in the blink of an eye. From the Labour government’s Autumn budget, designed to drive economic growth, to a new US President and ongoing global conflict, it all has an impact. While it’s impossible to predict how any of these factors will pan out, assuming everything stays reasonably stable and the economy slows down, we should see even more improvement over the next 12 months.

You should also bear in mind that your individual financial circumstances will play an instrumental role in the rates you’re offered. Factors such as your credit score, deposit amount, and the type of mortgage product you choose will all play a part - irrespective of wider market trends.

Are you on the right mortgage deal?

Did you know we can provide you with real-time updates about your current mortgage? 

Mortgage monitoring is a free and handy service which compares your current deal with others on the market. 

It will alert you if a more suitable deal is found, send you monthly home reports on your property, and provide an easy way to contact your personal mortgage adviser.

Will mortgage rates go down in 2025?

It’s important not to second guess the market when it comes to establishing whether mortgage rates will go down in 2025. Economic conditions are changing all the time due to a range of factors outside of our control, so we can never truly predict what’s around the corner. However, at the time of writing, we’ve seen mortgage rates begin to harden again. 

The new Labour government made significant tax rises in the Autumn budget. Hopefully, this growth kicks into the economy, but that’s not going to be a quick fix. With this in mind, the Organisation for Economic Co-operation and Development (OECD) and Bank of England have forecasted a number of rate reductions next year², which indicates that mortgage rates should hopefully come down slightly over the course of 2025.

“To anyone thinking about buying their first home, remortgaging, or making a move in 2025, the rates we’re currently experiencing - around the 4% level - are what we’d class as ‘the new normal',” said Ben.

 “We’re not going to get the mortgage rates we did two years ago, and are at and around roughly where we’re going to be for the foreseeable future. With this in mind, I would urge anyone waiting for rates to come down beneath 4% to take action. This is where consulting with a mortgage adviser is invaluable, as they'll secure a deal that suits your financial needs.

There’s never been a better time to kickstart your mortgage journey, so why not get an idea of what you could afford?  

Looking at the bigger picture, the economy appears to be on an upward trend, and there’s nothing to suggest that this won’t continue. Mortgage rates are now more affordable, and the housing market has shown resilience, giving buyers renewed confidence. 

Subject to periods of fluctuation, on the basis that inflation and swap rates continue to adopt a general downward trend, it’s likely that rates could go down in 2025. Again, this is entirely dependent on a number of factors, so it’s tricky to know for sure. That being said, we’re in a much stronger place than we were 12 months ago, and certainly in a better position to get mortgage ready.

References

¹ Money Week, 2024
² Investment Week, 2024

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