Of course, wanting to know if mortgage rates are going to fall in 2025 is a big question. And it’s one our mortgage experts are asked all the time, both professionally and personally (dinner parties are particularly hard this time of year). Whilst it’s true that the mortgage market is a volatile and often unpredictable place, when you’ve been around it for as many years as we have, you come to notice certain patterns and signs that can indicate which way rates are going to go in the year ahead.
First, let’s just clear something up. Interest rates affect your monthly mortgage payments the most out of every factor (size of deposit aside), and interest rates are set by the Bank of England, so being 100% certain of their next move is not always guaranteed.
With all that context out the way – yes, most mortgage rate indicators for the year ahead are positive. Mortgage borrowers should enjoy lower rates in 2025. That means lower monthly payments and, as interest rates fall, fixed rate mortgages and variable rate mortgages can offer better deals.
How Are Mortgage And Interest Rates Interconnected?
When the Bank of England lowers or raises rates, mortgages are affected. Higher interest rates means higher mortgage rates because it costs more to borrow for, and from, lenders. And interest rates (and therefore mortgages) are a volatile, often unpredictable thing.
Take when interest rates rose from 0.1 to 5.25% between December 2021 and August 2023. Two cuts in 2024 brought interest rates to around 4.75% and experts are predicting between two and four further cuts in 2025. So there’s hope for much more competitive mortgage rates in the year ahead for those on variable mortgage rates and fixed rates alike.
Predictions vary as to what interest rates could fall to in 2025 – most estimate between 3.75 and 4.25%, but economists at Capital Economics predict the rate could be as low as 3.5% by early 2026. The truth is, it’s unclear exactly how much interest rates will fall, but the general consensus among experts is that they will fall.
The interconnectedness between mortgage and interest rates means you can also get an idea about what might happen by looking at other countries. The European Central Bank and Federal Reserve in the US continue to cut interest rates, making mortgages more favourable to borrowers. The UK should therefore follow suit, and better mortgages will be available here in 2025.
Mortgage Rates: 2024’s Hangover
If we were writing this blog post last year we would have agreed with almost every other professional mortgage broker and commentator out there. Not only would we have predicted that mortgage rates would fall, but we would have predicted they would fall hard and fast. It’s ironic, really, that these predictions may have been the very thing that leads us to a more cautious prediction today.
We still believe mortgage rates will fall. However, inflation only fell from 2.6% to 2.5% in January 2025, which was slower than expected (and may have been reduced in a cautionary manner because of our industry’s buzz around fast falling mortgage rates) and interest rates are now predicted to fall at a much calmer rate than previously expected. In fact, plenty of experts are now warning that the markets are less convinced of fast falling mortgage rates, and they may go up slightly in the short term as interest rates stabilise before they begin to fall over time.
January 2024 vs January 2025 Mortgage Rates
Whilst it’s likely rates will go up between months at some point in 2025 (with an overall downward trend), it’s worth comparing average rates from January 2024 and today’s rates in January 2025, because that shows a much more accurate trend with more data:
- January 2024 Mortgage Rates: 5.93%
- January 2025 Mortgage Rates: 5.48%
These rates are based on an average two year fixed mortgage rate deal.
As you can see, mortgage rates aren’t spiralling downwards as many of us would have hoped, but they are declining steadily over time. That’s why we’re confident the trend will continue in 2025.
What Would Lower Mortgage Rates Mean For Lenders?
Mortgage lenders might grumble at lower interest rates because it essentially means they charge less for mortgage lending so they don’t make as much money by being a lender. However, it’s all swings and roundabouts in mortgage lending, and whilst they might not make as much per borrower, they’re more likely to find more borrowers wanting to use their services when the market is good and rates are low. This will bring in more customers than they would otherwise have had.
Lower mortgage rates mean lenders can offer more competitive deals, too, taking customers away from competitors during remortgages, for example.
There’s no denying, however, that a reduced bank rate and mortgage rate is better for borrowers than lenders overall.
What Would Lower Mortgage Rates Mean For Borrowers?
When UK mortgage rates are low, borrowers can take advantage of some incredible deals, depending on the deal you’re currently on and the situation you’re in. With interest rates expected to fall further and mortgage rates likely to follow, it’s important to learn now what your actions ought to be if mortgage rates fall to get the best deal for you and your circumstances.
New Borrowers
If you’re set to start your mortgage journey in the coming months, the best advice we can give you right now is to just wait a month or two to get an idea of where the mortgage market might be going. When rates start to fall, you should then find the best deal available at the time and lock that rate in.
When you enter a fixed rate mortgage you lock in for a certain period – usually 2, 5, or 10 years. As a new borrower you’re much more likely to be offered (and accepted for) a 2 or 5 year deal. Take a look at the rates being offered and decide, either alone or with support from a mortgage broker and adviser, which deal is right for you and how long you want to lock in for.
Obviously if you lock in for longer you should be aware that better deals might be found in the in between, but rates might also go up, and you’ll be locked into a brilliant deal. It’s a balancing act, but as a new borrower right now, you’re in the best position you can be in to call the shots. As borrowing costs fall, power shifts to the borrower, not the lender.
Those On Tracker Mortgages
If you’re currently set up on a tracker mortgage with your lender, then you’ll be familiar with how it works. As interest rates fall and mortgage rates follow, you’ll automatically benefit from lower rates per month. Likewise, if rates increase your mortgage payments rise with it.
The benefit of a tracker mortgage is that when rates are low you’re able to make the most of it. But there are drawbacks, including a varying payment each month, making it difficult to plan and budget.
If you currently have a tracker mortgage with your lender then you won’t need to do anything. UK interest rates and mortgage rates will, if predictions are correct, fall soon and you’ll be in a better situation than those on fixed deals who struck their deal when rates were higher.
Those On SVR Mortgages
This one will surprise many of you. If you’ve recently finished a fixed rate mortgage, then you will automatically be put on your mortgage lender’s standard variable rate mortgage. Standard variable rates are the rates your mortgage lender will automatically put you on after your previous mortgage deal ends.
When interest rates fall, your lender should, in theory, slash their SVR rates accordingly. They don’t have to, however, so it’s best to move on to a better deal if that’s the case as you don’t want to be paying more in interest rates than you need to.
Those On Fixed Rate Mortgages
If you’re currently on a fixed rate mortgage then there isn’t much you can do. Locking into a fixed rate deal with mortgage lenders means you are expected to stick to that deal until the term ends. If you’ve recently locked into a deal for the next 2-5 years, then you won’t be able to take advantage of any falling mortgage rates expected in 2025.
But don’t worry. The mortgage market changes all the time, and who’s to say that by the time your fixed rate mortgage ends, you won’t be in a better situation with even lower rates? That’s the game when it comes to mortgages and a large part of it comes down to luck. It’ll fall in your favour again in the future.
My Fixed Mortgage Rate Ends This Year – What Should I Do?
If your fixed rate mortgage is set to end in the next 6 months then now is a great time to start looking at the options that are open to you for when the time comes to strike a new mortgage deal with better rates. If you need support, then a mortgage broker can help you find the best deals, but don’t forget to approach your current lender too before your deal with them is up. They’ll be keen to keep you around and if you show knowledge of the current mortgage market conditions, they’ll do their best to offer you a good deal.
How Accurate Are Mortgage Rate Predictions?
Predicting mortgage rates is difficult, as we’ve said. The UK finance situation can change on a whim when outside factors come into play. But we have to remember the reason interest rates shot sky high in recent years – it was so the Bank of England could get inflation down to its 2% target by increasing the exceptionally low interest rates we had all previously enjoyed.
We’re a little way off that target still, sitting at 2.5% inflation in January 2025, but we’re heading in the right direction and that means mortgage and interest rates can start coming down again.
You can never be 100% certain of rate changes, but we’re fairly confident lower mortgage rates are incoming for 2025, so getting prepared now is the best thing you can do to take advantage of those excellent deals as they come around.
If Mortgage Rates Fall Will House Prices Follow Suit?
Wouldn’t it be lovely if, at the same time mortgage rates are expected to fall, house prices did the same, meaning we’re all walking away with new houses and more money in our pockets? Unfortunately, however, property market experts are expecting around a 4% increase in property prices overall in 2025.
That’s not necessarily a bad thing, as this is in line with long-term averages, and property experts are insistent that property purchases will remain a “buyer’s market” in 2025, meaning conditions in the market favour buyers, not sellers, giving them greater choice and stronger bargaining powers.
House prices might increase, but the cost of borrowing is set to fall, and that can only be a good thing for homeowners.
Will Mortgage Rates Go Down In 2025? Final Thoughts
Nothing is guaranteed in mortgages, but all indicators suggest falling mortgage rates for the year ahead. That means borrowing is better for borrowers, and you pay less each month on your mortgage payments than you would otherwise have done.
If you’re new to home owning or are looking to remortgage and have a history of poor credit – our team at When The Bank Says No can help you secure a deal from specialist mortgage lenders. Our connections to the whole market mean we can help you find mortgage lenders who are more open to hearing about your circumstances rather than sticking strictly to affordability check boxes that bar individuals from mortgage approval without getting to understand the changes a person has made to rectify mistakes of the past.
Work with our mortgage broker experts today to find your yes, even when the bank has said no.