Are Mortgage Rates Going Down
Understanding the Impact of the Recent Bank of England Base Rate Cut
The Bank of England has recently reduced its base rate to 4.75%, a move aimed at stimulating economic activity and achieving the 2% inflation target. This decision has sparked renewed hope for homeowners and first-time buyers alike. But how does this translate to mortgage rates and affordability? Let’s break it down.
Why Was the Base Rate Cut?
The Bank of England’s primary goal is to maintain a healthy economy by balancing inflation and growth. After inflation surprisingly dropped below the 2% target following a previous rate cut in August, the Bank acted again to prevent further stagnation.
While mortgage rates are not directly tied to the base rate, they often follow its trajectory. This means we might start seeing gradual reductions in mortgage product rates, but economic uncertainty—thanks to the recent Autumn Budget and global events—could slow the pace of these changes.
Are Mortgage Rates Falling Already?
Yes, we’re starting to see fixed rates dip below 4%, a figure not seen in over three years. While this trend is promising, don’t expect a return to the ultra-low rates of 2021. Instead, think of this as a stabilisation phase, with more potential reductions on the horizon.
What This Means for You
- For Homeowners: Lower rates could make monthly payments more manageable. If you’re due for remortgaging soon, it’s worth shopping for better deals.
- For First-Time Buyers: Reduced rates combined with a recovering property market may present opportunities, especially for those ready to act.
What Do Banks Predict for 2025?
Here is a summary of seven predictions regarding the UK base rate for 2025, highlighting views from banks, analysts, and institutions:
- Goldman Sachs: Predicts a significant reduction in the Bank of England (BoE) base rate, potentially falling to 2.75% if inflation stabilises. They identify 2.75% as a possible “neutral rate” for the UK, balancing economic activity without over-stimulating or constraining it.
- Bank of England Signals: BoE officials, including Governor Andrew Bailey, have suggested a cautious approach to rate cuts, with the potential for gradual adjustments depending on inflation trends. Analysts infer that rates may settle closer to 3.5% by late 2025
- Capital Economics: Suggests a base rate of 4.0% by the end of 2025, noting ongoing economic challenges like subdued growth and sticky inflation, which could slow the pace of rate reductions
- Deutsche Bank: Anticipates the BoE’s base rate to remain relatively elevated through much of 2025, hovering around 4.25% due to structural economic issues like weak productivity and rising debt.
- UBS: Foresees a decline in rates to approximately 3.25% by the end of 2025, contingent on steady disinflation and improved economic data
- Pound Forecast Analysis: Projects the base rate to average 3.5%-4.0% throughout 2025, with some fluctuations depending on external factors like global economic conditions
- Huw Pill (BoE Chief Economist): Highlights the complexity of determining the “neutral rate” and suggests a cautious trajectory toward lowering rates. His estimates align with a base rate settling in the range of 3.0%-3.5% by 2025
These projections reflect varying economic outlooks, with inflation trends, productivity, and public debt as pivotal factors shaping monetary policy decisions. For further details, the sources mentioned provide deeper insights into these predictions.
Fixed or Tracker Mortgage: What Should We Choose?
Choosing between a fixed-rate mortgage or a tracker mortgage depends on your risk tolerance and future financial plans.
Fixed-Rate Mortgages
- Offer stability with predictable monthly payments.
- It is ideal if you want certainty in your budgeting over the deal term.
Tracker Mortgages
- Move in line with the Bank of England base rate, meaning you could benefit from further rate reductions.
- It is best if you anticipate lower rates in the near future and are comfortable with potential fluctuations.
How Does Political Change Affect Mortgage Rates?
Political events like Labour’s recent landslide election victory can create economic volatility. While this may temporarily impact mortgage lender confidence, the housing market shows signs of renewed buyer activity and slow recovery.
Practical Steps to Take Now
1. Review Your Mortgage Terms
If you’re on a standard variable rate (SVR) or your fixed-term deal is ending, now is the time to explore alternatives. Switching could save you hundreds or even thousands annually.
2. Consult Your Broker
With the mortgage market in flux, a broker can help you compare deals and understand which product best suits your needs.
3. Keep an Eye on Inflation and Base Rate Changes
Rates could drop further in the coming months. Stay informed to avoid locking in a deal prematurely.
A Note for First-Time Buyers
If you’re considering buying your first home, don’t let the fear of “waiting for the lowest rate” paralyse you. Property prices in affordable areas stabilise, and tailored first-time buyer products remain available. A variable-rate mortgage might offer flexibility until the market settles further.
What’s Next for Mortgage Rates?
While the base rate reduction signals positive news, economic uncertainties mean we’re not out of the woods yet. However, signs of recovery in the property and mortgage markets suggest better opportunities ahead for homeowners and buyers.
Need Help?
Navigating the mortgage market can be daunting, but you don’t have to do it alone. Speak to a trusted broker who can guide you through the process and ensure you secure the most affordable deal for your situation. Mortgage rates are a moving target, but with the right approach, you can control your finances and make informed decisions. Stay proactive and act on improving opportunities quickly!
At The Mortgage Blog, we’ll ensure the process is as smooth as possible, from finding the right lender to getting you the best rates. Please call us on 0333 335 6595 or message us to submit an inquiry. We’ll connect you with the most suitable advisor for your needs.
