NEWS: Are Mortgage Rates Going Down? [January 2025]

The Bank of England base rate has been held at 4.75%. What's next for our mortgages?

The Bank of England voted to keep the base rate at 4.75% in an effort to control inflation, which has risen to 2.6%.

It’s clear that inflation remains a central concern for the Bank of England. While the Bank of England previously maintained a hawkish stance on the base rate to reduce inflation, it's fluctuated over the past few months. 2% yearly inflation is typically a sign of a healthy economy, and it is likely that a primary concern will be ensuring that inflation stays under control, particularly in the face of the new government's proposed legislation. 

Now that the bank rate is below 5%, it's likely that mortgage product rates will follow. It's possible that we won't see significant product rates drops initially, mainly due to the economic uncertainty presented by the recent Autumn Budget and the US Election. 

It's common for several legislation changes at once to cause uncertainty, which impacts lender confidence and borrowing costs, but this is usually short-lived. Once the dust settles, mortgage rates will likely see further reductions, particularly if the Bank of England base rate drops again. For homeowners and prospective buyers, this should ease monthly payments and mortgage affordability.

While it’s likely that interest rates won’t return to the uber-low levels we saw before 2022, five-year fixes dropping consistently across the board is certainly a sign that there are more reductions to come. 

Elevated living costs have caused a housing slump across many regions in the UK, but the property market is showing signs of slow recovery. Individuals are still buying despite high costs after holding off throughout 2023, and this movement is expected to grow following Labour's landslide win in the general election.

And on top of this, the housing market is showing signs of recovery. Increased buyer activity and improved market sentiment have contributed to modest house price increases, though affordability remains a key challenge.  

As winter approaches, expect continued steady growth in house prices, followed by the typical seasonal slowdown toward the end of the year.  

So what does this mean for mortgage rates and affordability going forward?

In this post, we provide expert insight into the latest thoughts from our mortgage brokers, along with insight into what caused interest rates to rise last year, what mortgage rates will do next, and how a decrease in mortgage rates could affect your repayments.

How Will a New Government Affect The Economy?

It is common for the economy to experience some volatility during elections and periods of political uncertainty. Businesses may delay investment decisions amid this instability, potentially slowing economic growth.

Issues raised during and after an election can sway consumer confidence, impacting spending and saving behaviour. Election outcomes can also shift expectations about inflation and interest rates, influencing borrowing costs and investment.

Furthermore, international perceptions of the UK economy, shaped by political stability and economic policies, can affect foreign investment and trade relations.

The overall impact of a general election on the UK economy hinges on the winning party's policies, post-election political stability, and businesses' and consumers' reactions to these changes.

What Caused Interest Rates to Rise Last Year?

The Bank of England's monetary policy changes – steadily raising the base rate - is a measure to combat inflation.

Making borrowing more expensive stabilises inflation and slows the economy; with more people saving and spending less, price rises begin to slow.

However, 2023 saw the energy crisis continue and geo-political situations worsening – the ongoing war in Ukraine – which has further impacted the Bank of England's changes to interest rates.

All these factors added up to send interest rates through the roof.

The graph below helps to visualise what inflation has looked like through that past 12 months:

Source: Statista

As you can see, the base rate surge since 2021 has largely been a reaction to soaring inflation. And although we still have a way to go before the Bank of England reaches its goal of 2%, inflation is dropping gradually.

How is the Mortgage Market Affected By Interest Rates?

Here are 3 tables comparing some of the best mortgage rates available on the market from the past 12 months. 

You can see how the mortgage market has changed over the last 12 months, and where the rates sit currently: 

March 2022 

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Purchase	60%	1.49%	4.9%	£999	Yes
5 years	Fixed	Remortgage	60%	1.89%	3.99%	£1495	Yes
10 years	Fixed	Remortgage	75%	2.46%	3.99%	£995	Yes

November 2022 

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Purchase	60%	3.60%	6.49%	£999	Yes
5 years	Fixed	Remortgage	60%	4.83%	6.24%	£995	Yes
10 years	Fixed	Remortgage	75%	4.89%	5.5%	£995	Yes

March 2023 

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Purchase	60%	4.14%	7.49%	£999	No
5 years	Fixed	Remortgage	60%	3.89%	7.49%	£999	Yes
10 years	Fixed	Remortgage	75%	4.04%	7.49%	£999	Yes

September 2023 

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Tracker	Purchase	60%	5.39%	8.4%	£999.00	No
5 years	Fixed	Remortgage	60%	5.12%	6.9%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.91%	6.2%	£999.00	Yes

March 2024

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Tracker	Purchase	60%	4.44%	8.74%	£0	No
5 years	Fixed	Remortgage	60%	4.24%	7.99%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.63%	7.99%	£999.00	Yes

October 2024

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Remortgage	60%	3.89%	6.80%	£999.00	Yes
5 years	Fixed	Remortgage	60%	3.79%	5.80%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.69%	5.60%	£999.00	Yes

Source: Moneyfacts 

When interest rates rise, it becomes more expensive for consumers to borrow money. Naturally, this includes mortgages. Higher interest rates have affected the housing market in a number of ways:

Lower demand - Higher interest rates can make mortgages less affordable for first time buyers, leading to lower demand for homes.

Reduced affordability – Rising rates also affect second property buyers and BTL investors. Their mortgage payments could go up, meaning they may need to raise rent to compensate. Or, their projected rent won't meet the affordability for a mortgage on a new investment property, so they don't buy, reducing demand.

What Mortgage Types Are Most Affected By Interest Rate Changes?

If you have a mortgage with a variable interest rate – a rate that closely follows the Bank of England's base rate - you will have seen your mortgage costs go up throughout 2023.

However, if you're on a fixed-rate mortgage, you might have yet to see changes, depending on the length of your term. But you could still be stung when your deal ends and you do remortgage. Currently, many homeowners on the tail end of a low fixed-rate mortgage are waiting with bated breath in hopes that rates will drop before they remortgage to a new deal.

Other property owners are taking the hit and switching to a variable rate in hopes of switching to a cheaper deal later this year.

Monthly increases in mortgage payments have been more acute for those whose fixed-rate mortgages ended and they have automatically switched to their provider's SVR (standard variable rate) – these are typically the most expensive interest rates to pay.

If you're looking to remortgage in 2024, we recommend comparing fixed and tracker mortgages to see which may be more suitable to you and offer the best available deal.

And if you're currently on a very low rate and want to raise additional finance without remortgaging, a second charge mortgage could help you protect your current deal.

Are Mortgage Rates Going Down Now?

Now that the Bank of England base rate has been reduced, it's likely that mortgage rates will begin to drop across the board. Fixed rates are beginning to drop under 4% again already, and we could see further reductions depending on whether and when another base rate cut is expected.

Last year, the demand for mortgages was lower, with many prospective buyers holding off until the market was more stable and many would-be buyers simply unable to afford homes amid the elevated costs. Because of this, lenders became more competitive over the smaller mortgage demand, lowering results to attract business.

The current reduction will cut living costs for households across the country, and many financial professionals are optimistic that we'll see another bank rate drop later this year, with mortgage rates to follow.

What Do Lower Mortgage Rates Mean for First Time Buyers?

With a potential decline in mortgage rates forecasted, it may be tempting to postpone plans until the lowest rates arrive – this may be true not just for first time buyers, but also those remortgaging.

However, a compromise could be securing a variable rate mortgage, so if rates do go down, you're not missing out.

One piece of positive news for first time buyers is the specialised mortgage products still available – deals tailored to first time buyers specifically - and lower house prices in affordable areas.

The best strategy is to consolidate your finances, understand your borrowing power, and seek a mortgage broker's help to find a deal that best product for you.

How Can You Find an Affordable Mortgage in 2024?

Despite current optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.

We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, give us a call at 0203 750 0305 or book a free consultation.