One of the most common questions right now is whether mortgage rates will continue to decline in 2025. With the latest budget statement behind us and the outcome of the US election now clear, economists are sharing their forecasts for how these events could influence the Bank of England's base rate.
November Monetary Policy Committee Update
The recent MPC meeting signalled a potential reduction in the base rate. However, it’s important to note that a lower base rate doesn’t always mean lower mortgage rates. Lenders are not obligated to mirror the base rate changes; instead, they often set mortgage costs based on market competition and broader economic trends.
While many lenders do lower rates when the base rate drops, it’s worth remembering that this isn’t guaranteed.
How Does Inflation Impact Mortgage Rates?
Inflation plays a critical role in shaping mortgage rates. When inflation decreases, it typically reflects reduced price pressures, but it doesn’t always correlate with reduced consumer spending. If inflation declines due to a slowing economy, spending might also decrease. However, if it’s due to healthy economic adjustments, spending might remain steady.
But there’s a balancing act. In September, Bank of England Governor Andrew Bailey cautioned: "It's vital that inflation stays low, so we need to be careful not to cut too fast or too much." Bank of England
A steep reduction could lead to a surge in spending and a rebound in inflation, undoing progress.
Other Factors That Influence Mortgage Rates
Mortgage rates aren’t just dictated by inflation and the base rate. Lenders also consider:
- Competitor activity - Competitive pressure may drive lenders to offer lower rates to attract customers. However, these ‘new customer’ deals may not always extend to remortgage offers.
- Global Events - Oil prices, geopolitical developments, and even trends in service-sector spending, like hospitality, can ripple through the economy and affect interest rates.
What Could 2025 Look Like?
Predicting mortgage rates is challenging, but some experts suggest they could dip as low as 3.5% by the end of the year. If you’re a first-time buyer or considering remortgaging, now is the time to start planning.
My Advice
- Plan Ahead: Begin researching and strategizing early – remember, a Mortgage in Principle can last up to 90 days.
- Seek Professional Guidance: Whole of market mortgage advisors like me have access to lenders that only work with brokers.
As a fee-free mortgage adviser (my costs are covered by lender commissions), I’m here to help you navigate your options and prepare for any changes in 2025. If you have questions or want tailored advice, let’s connect!
Feel free to message me to discuss your situation.
