2024 was an eventful year for the UK economy. We finally saw inflation get back to single figures, and interest rates started on a pleasing downward trajectory, but the end of the year didn’t end as well as it started.
The first drop in interest rates came in August 2024, followed by another in November, which gave borrowers hope for the end of the year and into 2025. However, December threw a curveball into the mix where rates were held at 4.75%.
So, what does this mean for interest rates in 2025? What can we expect and how can we head into 2025 prepared for all eventualities? Keep reading our comprehensive guide on understanding mortgage rates this year from your trusted mortgage broker, TaylorMade.
A Brief Overview of What Happened to Mortgage Rates in 2024
In 2022, we saw interest rates start to climb rapidly and continue to climb until the end of 2023. The reason interest rates started to rise is due to inflation, which in the UK has a target of 2%, however, we saw record highs of 11.1% in October 2022, which meant that interest rates were raised to encourage people to spend less and reduce demand.
After many months at 5.25%, the bank's base rate of interest fell to 5% in August 2024 and in November, took another cut and fell to 4.75%. This was a promising step in the right direction, with many industry experts predicting that the rate would remain low or continue to decline steadily. However, December saw a hold on interest rates at 4.75% due to zero growth in the economy, which means that until the next Bank of England meeting in February, we are likely to see no interest cuts.
What Does the Forecast Look Like for Our Economy This Year?
With the base rate held at present at 4.75%, we won’t find out what will happen again until the next meeting on 6th February. In the meantime, however, we can gauge whether rates will increase or decrease by keeping an eye on inflation. Inflation unfortunately started to rise again toward the end of last year from its 2% target to 2.6%, which is why base rates were held, from this, we have received varying forecasts from industry experts.
Goldman Sachs analysts announced their prediction of a cut as low as 2.75% for interest rates by the end of 2025, while Santander’s experts predict a fall to 3.75%, and Barclay’s predicting a drop of 3.5%.
How Will Mortgage Rates Be Affected?
The Bank of England has tried to combat rising inflation by continually upping the base rate of interest over the past few years and even with the rate being held at 4.75% in December 2024, there are still further cuts predicted in 2025.
Fixed Rate Mortgages
If you have a fixed rate mortgage, which is more than 8 in 10 homeowners at present, it will mean that any change in base won’t immediately affect your monthly payments. Mortgage rates are still much higher than they have been for much of the past decade with the average 2-year fixed deal at 5.46% and a 5-year fixed at 5.23%. This means that homeowners and those remortgaging are having to pay much more than if they borrowed the same amount a few years ago. Around 800,000 fixed-rate mortgages are due for renewal on average, every year, until the end of 2027.
Tracker Mortgages & SVR (Standard Variable Rate) Mortgages
Around 600,000 homeowners have a tracker mortgage, which tracks the Bank of England base rate, so if the rate rises or lowers, so do their payments, and the impact is immediate. If industry predictions are correct and we are due to see more rate cuts into 2025, then those on tracker and SVR mortgages will likely see the most benefit. However, SVR mortgages are at the lender’s discretion, so even if the rate falls, it is not definite you will see the decrease in payments you would like as lenders have control over these rates.
Current Cheapest Mortgage Rates in the UK
A report published by Rightmove at the beginning of January states that the lowest rates at present for fixed-rate mortgages are:
- 4.20% for a 2-year fixed mortgage (compared to 5.76% this time last year)
- 4.07% for a 5-year fixed mortgage (compared to 5.37% this time last year)
Moneyfacts has stated that the current SVR interest rate is just shy of 8%, which is also a drop since this time last year.
How to Stay Ahead of the Curve in 2025
If you’re due to renew in the next 6 months we would wholeheartedly recommend using a mortgage broker to help you find the best deals on the market. Mortgage brokers can check hundreds of lenders, far more than one person can do alone, and they can take the stress and overwhelm out of a daunting situation. As an independent mortgage broker, we would recommend fixing your mortgage deal for peace of mind, this way you will know what you will be paying each month instead of fluctuating amounts that rise and fall with the BoE’s base rate. A tracker mortgage could be cheaper when the rate falls but if it rises, you will end up with a higher monthly repayment amount.
Other ways you can ensure you get the best mortgage deals in 2025 are:
- Consider any fees that come with your mortgage deal, as they can make a huge difference to the overall cost and ensure that you pay them upfront.
- Consider the length of your initial repayment term because if you wanted to leave early to move to a cheaper product then there may be an early repayment charge.
- Check your credit report and try to improve it where possible as this has a big impact on what mortgage deals and rates are available to you.
- Shop around and look at as many lenders as possible. This is difficult to do on your own, which is why we recommend an independent mortgage broker such as TaylorMade.
Consider a Mortgage Broker to Help You Find the Best Deals on the Market Today
If you’re struggling to keep up with your increased monthly payments or are a first-time buyer wondering how to navigate the market in its current state, then a professional, independent mortgage broker with access to the best deals on the market could be the answer to your problems.
At TaylorMade, we offer jargon-free, helpful advice to aid you in understanding how today’s uncertain economy could impact you and how we can help you navigate house price and mortgage price fluctuations. We are a local, independent mortgage broker with access to hundreds of lenders locally and nationally.
We are based in Manchester but operate throughout the UK, so contact us today to see how we can help.
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