Mortgage rates have continued to be somewhat volatile in the UK leading into 2025, but with the Base Rate falling, can we see the light at the end of the tunnel? Or could other factors throw a spanner in the works and make mortgage rates rise again? What will happen to mortgage rates in 2025? This is perhaps the number one question we hear as mortgage advisors at the moment. And for good reason. Almost 2 million fixed-rate deals are set to end in 2025, giving mortgage holders a decision between remortgaging at current rates or moving onto the higher Standard Variable Rate. There are also a further 2 million or so variable rate deals in the UK, where mortgage holders will be instantly affected by changing rates. The number of new mortgages is also predicted to increase compared to recent years, with over 1 million housing transactions expected in the UK in 2025. So, will mortgage rates go down in 2025? Or could they go up again? Read on to see the mortgage industry’s current predictions for the year.
How Are Mortgage Rates Determined?
There is a misconception in some circles that the Bank of England’s Base Rate alone determines mortgage rates in the UK. The Base Rate is one important factor, especially for variable-rate mortgages, but it’s certainly not the only force at play. Other factors include swap rates, the state of the property market, political and geopolitical circumstances, the state of the UK economy, and inflation. Let’s break these down further.
Swap rates don’t get much media attention compared to the Base Rate, but they are an important factor in deciding mortgage rates. Swap rates essentially reflect the financial industry’s predictions of future interest rates. They are set by financial institutions and can heavily influence mortgage rates.
The state of the property market can directly affect mortgage rates simply through supply and demand. If there is less demand for property, there will be less demand for mortgages, which can force lenders to offer more competitive rates as they fight for business. Of course, the opposite is also true, meaning rates can go up when demand is high.
The effect of political and geopolitical circumstances can be harder to track, but they are certainly factors to bear in mind. For example, the budgetary and geopolitical uncertainty caused by Labour’s 2024 budget and the Trump election win were partly responsible for an increase in mortgage rates in late 2024.
As for the state of the UK economy and inflation, these affect mortgage rates indirectly, as it’s really their effect on the Base Rate that becomes relevant to mortgage rates. You can learn all about the Base Rate and how it affects mortgage rates by reading our guide, ‘What is the Base Rate and How Does it Affect My Mortgage Rate?’
So as you can see, there’s quite a lot at play when it comes to determining mortgage rates. Although the above serves as a fairly brief introduction, having a basic understanding of these factors will help as we discuss mortgage rate predictions for 2025.
Where Are Mortgage Rates Going at the Moment?
Mortgage rates decreased through much of 2024, with some lenders offering sub-4% deals for the first time in years. However, near the end of the year, despite cuts to the Base Rate, many lenders began increasing their fixed rates again. As mentioned above, the Base Rate is not the only factor that lenders consider when deciding what rates to offer.
Inflation began to increase towards the end of 2024, which led to a belief that the Bank of England may reduce the Base Rate more slowly than predicted. There has also been some market uncertainty caused by the Labour budget, Donald Trump’s return to the White House, and the continued war in Ukraine. Along with volatile swap rates, these factors are likely responsible for the recent rate increases for fixed-rate mortgages.
That being said, whilst the majority of lenders stuck to their increased rates, a select few reduced them in November 2024 after seizing opportunities in swap rates. Therefore, it’s safe to say that the latter months of 2024 have been a fairly good representation of the unpredictability of mortgage rates in today’s market. That being said, we’ll do our best to offer the industry’s current best predictions for 2025 a bit later. But firstly, let’s have a look at what the industry is expecting to happen to the Base Rate.
Will the Base Rate Go Down in 2025?
The Bank of England’s Base Rate rose from an all-time low of 0.1% in 2021 to a 16-year high of 5.25% in 2023. This put a lot of upward pressure on the mortgage market and many borrowers, especially those with large loans, have been hit hard by this sudden increase. Thankfully, the BoE started to cut the Base Rate in the second half of 2024 and this downward trend is expected to continue through 2025. However, as inflation has begun to creep up again in recent months, and the world enters more geopolitical uncertainty, it’s hard to know how quickly the Base Rate will drop. This has been reflected in market predictions. Some economists were expecting the Base Rate to fall as low as 3% by the end of 2025, but now most experts have become less optimistic, suggesting 4% may be a good outcome.
No matter what happens with the Base Rate, it’s important to remember that other factors affect mortgage rates, especially fixed rates. So even if the Base Rate does continue to fall in 2025, that’s no guarantee that fixed rates will follow suit. Let’s have a look at mortgage rate predictions next.
Will Mortgage Rates Go Down in 2025?
So let’s get down to the big question – what will happen to mortgage rates in 2025? The general consensus is that rates will fall by the end of the year, but perhaps not by much. It’s also possible that it won’t be a linear drop, meaning there could be rate hikes along the way. Along with other factors, the budget has changed the financial landscape in the UK, and lenders are likely to be more risk-averse than expected. So should you wait for rates to drop before getting a mortgage or remortgage? Many industry experts are suggesting that holding out for big cuts would be taking a gamble for now. Especially as rates could increase at various points throughout the year. If you want to buy a house as soon as possible, the outlook for the year suggests that you’re probably better off locking in a rate as soon as possible. You can find out what deals are available to you by talking to one of our friendly advisors. As for remortgaging, let’s have a deeper look at that in the next section.
Should I Remortgage in 2025?
Whether or not you should remortgage in 2025 depends on several factors, including your current mortgage terms, your financial situation, and your future plans. As we alluded to above, if you’re putting off remortgaging in the hope of lower rates, the general advice is that this is a risky strategy. Coming out of a fixed rate period and being moved onto the higher Standard Variable Rate could cost you considerably more than locking in a new deal at today’s rates. On top of that, rates could rise again at certain points this year, so trying to time the market could be tricky.
To be more specific, let’s look at three common situations below and discuss your possible plan of action in each case.
If you’re within 6 months of the end of a fixed-rate deal, we recommend locking in a new deal at today’s rates. If rates do come down before your new deal starts, we should be able to switch you to the lower rate seamlessly, meaning you have nothing to lose but a lot to gain.
If you’re already on a Standard Variable Rate (SVR) mortgage, we recommend seeing what fixed-rate deals are available to you today. The SVR is usually the highest rate you can be on with your lender, so you’re likely to be able to save money by switching to a cheaper deal.
If you’re on a tracker mortgage, we recommend seeing what fixed-rate deals are available to you right now and chatting through your options with an advisor. Although fixed-rate mortgages aren’t right for everyone, they do offer the most security and stability. Therefore, it’s worth reviewing your mortgage with an advisor to see if you have the right deal for your situation.
If you would like to delve into this topic a bit further, please read our guide, ‘When is the Best Time to Remortgage?’.
The Bottom Line
Exactly what will happen to mortgage rates in 2025 is impossible to know for sure, but we have done our best to explain the industry’s current predictions. To summarise, rates are expected to come down by the end of the year or by early 2026, but potentially not by much. And the journey may not be a direct route. Many experts believe that rates could rise over the coming 12 months at various points even if the Base Rate falls, as we saw in the latter stages of 2024. So what does this mean for your mortgage? If you’re thinking of getting a new mortgage or remortgage in 2025, we recommend speaking to one of our friendly advisors as soon as possible. Holding out for cheaper rates or trying to time the market could be a gamble right now, so you might want to consider locking in a deal at today’s rates. Either way, once we understand your situation, we’ll be able to give you specific, tailored advice.
At Michael Usher Mortgage Services, we’ve been helping people throughout Surrey, Hampshire and Berkshire for over 30 years! We’re not affiliated with any particular lender, so we can access a comprehensive range of mortgages from across the market to find a deal that suits your needs. We’ll guide you through the process and liaise with your lender, estate agent and solicitor to ensure your application goes as smoothly as possible, and we can also help to protect your mortgage with our FREE Insurance Service.
Talk to one of our friendly mortgage advisors for free to get going quickly. Our head office is on Frimley High Street, but we can also help you remotely via phone or video call if you’d prefer. We look forward to chatting with you!
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