Mortgage rates fell at the start of 2025. Should you expect the slide to continue?
The Bank of England cut interest rates in February 2025 and mortgage lenders followed suit. Does this mean borrowing will get cheaper from now on?
At its latest meeting the Bank of England’s interest rate gurus decided to lower the base rate to 4.5%, from 4.75%.
This followed several cuts last year and means the base rate has come down from a peak of 5.25% in August 2024 to 4.5%.
This matters because the base rate of interest at the Bank of England is used as a guide by lenders for setting rates on mortgages and other loans. Lowering the base rate and thus making borrowing cheaper should stimulate the economy, while raising rates should cool the economy and bring down inflation.
Right now, the jury’s out on whether interest rates will fall further this year. Inflation is proving to be stickier than expected – it came in at 3% for January, which is above the Bank’s target of 2%.
That means the Bank of England may want to keep interest rates higher for longer, in a bid to bring inflation down.
That said, lenders take a range of factors into account when setting rates on mortgages (not just the Bank of England’s base rate). Competition among lenders, the need to attract new customers, the state of the jobs market and cost of living are all factors which lenders consider. UK Finance, the trade body for lenders, says mortgages will gradually become more affordable this year.
Below we detail what could be in store for your mortgage in 2025 and we look at:
Why have mortgage rates dropped?
The background is that interest rates on mortgages rose sharply during 2022 and the first half of 2023 as the Bank of England raised the base rate from the record low of 0.1% to a 15-year high of 5.25, which it held until August 2024.
The Bank was trying to combat inflation, which had risen to a 40-year peak on the back of soaring oil and commodity prices.
Since the Bank of England has cut the base rate to 4.5% and inflation is no longer at record-breaking levels, lenders have also cut rates on mortgages.
It looks possible that there will be another cut in the Bank of England rate in March, potentially meaning another drop in mortgage rates. Again, the risk is that UK inflation remains higher than the Bank would like. It prefers to keep inflation at 2%, the level it believes is healthy for the economy.
Will mortgage rates fall in 2025?
Some experts believe that the Bank of England will cut interest rates twice more in 2025 and take the base rate to 4%. That could mean lower mortgage rates by the end of the year.
However, the direction of inflation and whether the Bank decides to act or not is a total unknown.
Stephen Gomez, a mortgage adviser at Wesleyan, said: “While lower rates are in the pipeline, it’s likely that the Bank of England will maintain a cautious approach through 2025. This means we’re probably going to continue to see mortgage rates swinging up and down.”
The good news is that you can lock in a new price up to six months before your current deal expires, but still switch it to an even cheaper deal if one comes along in the intervening period.
What are UK mortgage rates today?
With all the talk about the Bank of England, inflation and interest rates, you may be wondering what this means for your home loan.
Below we outline the current fixed mortgage rates.
The best fixed rates for people remortgaging with a good chunk of equity in their homes are:
- Two-year fix at 60% loan-to-value: 3.99%
- Five-year fix at 60% loan-to-value: 3.98%
For those with less equity, the best remortgage rates are:
- Two-year fix at 80% loan-to-value: 4.53%
- Five-year fix at 80% loan-to-value: 4.36%
FAQs
Who can get a cheap mortgage?
The best mortgage rates tend to be reserved for:
- Existing homeowners who are remortgaging
- People moving home with a mortgage
- People with at least 40% equity or a big deposit – so the mortgage loan-to-value is 60%
- Borrowers with good credit scores
An independent mortgage broker could help you find the cheapest deals on the market for your financial circumstances.
