As we step into 2025, the UK housing market is poised for notable changes, particularly concerning mortgage rates. Recent analysis suggests a favourable shift for prospective homeowners and investors.
Projected decline in mortgage rates
The consumer body Which? forecasts a reduction in the Bank of England’s base rate from the current 4.75% to approximately 4% by the end of 2025. We expect this anticipated decrease to significantly influence mortgage rates. Specifically, the most competitive two-year fixed-rate mortgages, presently around 4.2%, could drop to approximately 3.5%.
This projection aligns with analysis from Savills and Oxford Economics, which predict a gradual decline in average mortgage rates over the next few years. They estimate that rates will decrease from 4.57% to 2.64% by early 2027, maintaining this level until 2029.
Implications for homebuyers and investors
A reduction in mortgage rates can enhance affordability for homebuyers, potentially lowering monthly repayments and broadening access to the property market. For instance, on a £620,000 home with a 75% repayment mortgage, a decrease from 4.56% to 4.16% could result in monthly savings, which, although modest initially, accumulate over time.
However, it’s essential to consider other market dynamics. The Office for Budget Responsibility and the Bank of England have indicated that mortgage rates may remain elevated longer than anticipated, especially if inflation persists. Additionally, changes in stamp duty, particularly affecting first-time buyers and investors, could influence market activity. The upcoming reduction in stamp duty thresholds on March 31 is expected to prompt a surge in transactions, as buyers aim to finalise purchases before the deadline.
Market outlook for 2025
The anticipated decline in mortgage rates, coupled with policy changes, suggests a dynamic year ahead for the UK housing market. While lower rates may boost buyer confidence and market activity, factors such as stamp duty adjustments and potential economic fluctuations will also play crucial roles.
Prospective buyers and investors should stay informed about these developments and consider both the opportunities and challenges presented by the evolving market landscape.