What’s next for Mortgage Rates in 2025?

The bank base rate is set by the Money Policy Committee who meet every month to decide whether it should go up, down or remain the same.

From 2000 to 2008, the Bank Base Rate (BBR) fluctuated from a low of 3.5% to a high of 6%.

When the Credit Crunch hit in 2007, to help boost the economy, The Bank Base Rate fell to a low of 2% in 2008 and to 0.5% in 2009 and during the Pandemic it even fell to 0.1%.

So since 2009, the Bank Base Rates have been historically low and this has helped keep the cost of buying and owning a home really low.

The reason the Bank Base Rate impacts mortgage rates in the UK is because it affects how much lenders pay to borrow money, so this influences how much they charge to lend money to those in need a mortgage (or loan) and what they are willing and able to pay savers in return for investing their money. 

Why should buyers keep track of Bank Base Rate Movements?

If you are buying or investing in property, it’s important to keep track of whether the Bank Base Rate is stable, going up or down as this can impact on the amount you pay for your mortgage now and in the future.

Data from the Bank of England shows how much and how quickly Bank Base Rates have changed over the last few years.

It shows during the Pandemic the lowest rate was 0.10% in March 2020 and the highest was 5.25% in August 2023.

In the past, fluctuations in the Bank Base Rate caused buyers and homeowners (including property investors) difficulties if they rose, slowing the property market down and often reducing property prices.

If the BBR fell, the opposite would happen and the property market would be boosted. This was because up until 2010, only half of properties owned with a mortgage, were fixed, so as soon as the BBR rose or fell, within a month, millions of households saw their mortgage cost go up or down.

In severe cases, if mortgage rates rose rapidly and caused property prices to fall, homeowners could get a double whammy – their costs went up, but the value of their home went down too.

For some this resulted in the owner being in negative equity, forced to sell or worse, being repossessed.

However, since 2019, according to UK Finance, 96% of people fixed their mortgage, with 45% of borrowers fixing for five years since 2017. 

Fixing mortgage rates while rates are low has helped not only protect homeowners over the last few years, but in turn this cushioned the property market from forced sales and repossessions when the Bank Base Rate rose to 5.25% in 2023.

In addition to fixed rates helping people to afford their existing home when rates are rising, from 2014, First Time Buyers in particular have benefited from being restricted to taking out repayment mortgages and assessed at average mortgage rates over time, rather than the historically low rates we saw before 2022.

This has meant they start paying off their mortgage loan as soon as they buy a home and are much less likely to be in negative equity if prices fall.

This is why, even though rates rose to 5.25% in just over a year in 2023, although it slowed the property market, on average property prices fell by around 5%, rather than fall by the typical 20% we’ve seen in past recessions.

What’s likely to happen to Bank Base Rates in the future?  

As we are in more uncertain times, it isn’t always easy to predict what’s likely to happen to Bank Base Rates – which also makes predicting whether mortgage rates will go up or down more difficult.

However, the current thinking is that although we are unlikely to go back to rates of 1 or 2%, the current forecasts suggest that Bank Base Rates could fall from the current 4.5% rate in May 2025 to as low as 3.5% by the end of the year:

• Capital Economics, International Monetary Fund (IMF) : 3.75%
• Morgan Stanley, Deutsche Bank : 3.5%

What does this mean for buyers and those needing to remortgage?

With Bank Base Rates predicted to fall, it may seem wise to wait to buy or to re-mortgage, if you are able, however there are other considerations to think about, especially if you are buying.

Currently in the property market, in most places and for most property types, the number of properties to choose from is rising more than the number of buyers that are looking to purchase, especially post the end of the of the Stamp Duty Tax temporary reductions.

As a result it may be possible to purchase the property of your dreams – or a great investment – now, which might not be available in six months time or might cost more as there could be increased competition from other buyers.  

Secondly, you may not have a choice. If the property you really want is available now, and you can finance it, or you have to move due to your personal circumstances, or your current mortgage is up for renewal.

During times like these, talking to a regulated, professional mortgage broker can really help you decide what’s best for your financial and personal circumstances.

As well as being able to help advise you, they also have access to a wide range of mortgages that could help ensure you have the right mortgage for you – and know whether to fix your mortgage or not.

Our financial partners, Embrace Financial Services, have qualified mortgage advisors across the UK who will give expert advice and guidance to help you make the right financial decision for you.

Book an appointment with an expert financial adviser

YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.