Charly Higman, Director of Mortgages & Protection at TFA Trusted Financial Advice shares her views on mortgage rates in 2025
With the Bank of England just reducing base rate again, many of you are keeping a close eye on mortgage rates and wondering what the future holds. In this edition, we delve into the current state of interest rates and explore the potential for changes in the coming months.
With inflation and global economic issues influencing the Bank of England’s decisions, we aim to provide you with insights into how these factors might impact your mortgage rates. Whether you hold a fixed-rate or variable-rate mortgage, understanding these dynamics is crucial for making informed decisions.
Will Mortgage Rates Fall This Year?
Mortgage holders and prospective homeowners in the UK are watching interest rates closely in 2025, hoping for lower borrowing costs after a long period of high rates. The Bank of England has given some insight into its policy direction and outlook. But what does this mean for mortgage rates? Will variable-rate mortgage holders find any relief?
Interest Rates and Their Future
The Bank of England’s Bank Rate stayed at 4.5% during the Monetary Policy Committee (MPC) meeting in March. While inflation has dropped from its 11% peak in late 2022, uncertainties remain. The Consumer Price Index (CPI) inflation is still above the 2% target and is expected to rise to 3.7% by the third quarter of this year. This has led to a cautious approach regarding further rate cuts.
There have already been three reductions in the Bank Rate since late 2024—from 5.25% to 4.5% in March. Experts predict that rates may gradually decrease further, provided inflation continues to ease and economic conditions remain stable. However, this process is likely to be slow and deliberate.
Thursday’s Bank of England Base Rate Reduction
The Bank of England announced a further reduction in the Bank Rate, bringing it down to 4.25%. This decision reflects the ongoing efforts to stimulate economic growth while managing inflation. The reduction is expected to provide some relief to mortgage holders, particularly those with variable-rate mortgages.
Impact on Fixed and Variable Mortgage Rates
Fixed-rate mortgage holders have been protected from previous interest rate increases during their fixed terms. However, many are nearing the end of their contracts and facing higher refinancing costs. The good news is that recent Bank of England rate cuts have made new fixed-rate deals more attractive, though they are still higher than pre-pandemic levels.
For variable-rate mortgage holders, changes to the Bank Rate have an almost immediate impact. With the March rate at 4.5%, borrowers with tracker mortgages or lenders’ Standard Variable Rates (SVRs) have already seen some reductions in their payments. This offers some relief, although the extent of this benefit depends on individual borrowing agreements.
Broader Economic Context
The UK economy continues to face challenges, including uncertain global trade policies, modest growth, and ongoing supply disruptions. Business investment and consumer confidence have remained subdued; however, the housing market has shown signs of recovery. Mortgage approvals have stabilised, and house price growth is returning, albeit cautiously.
The Bank of England’s balancing act between stimulating growth and controlling inflation will be crucial in shaping the interest rate environment. The MPC’s approach remains data-driven, with every decision influenced by factors such as employment rates, domestic spending, and global market developments.
A Gradual Path Ahead
While mortgage rates in 2025 may gradually decline, borrowers should manage their expectations. Fixed-rate mortgage deals may become more competitive, but variable-rate customers might see improvements more slowly. The Bank of England’s cautious stance underscores that persistent inflation or global economic shocks could disrupt plans for rate cuts.
