Mortgage rate predictions have become an even more intriguing topic of speculation after the worldwide pandemic.

The economy is now as unpredictable as ever, and there is speculation that there might be slight drops in 2025.

Here's what our experts have to say:

1. Interest Rates Will Go Up

Interest rates will go up on mortgages after they reached an historic low in 2021.¹

This means that rates are likely to increase in 2025, according to the latest forecasts from mortgage lenders and economists.

The average rate on a 5-year fixed mortgage is forecast to rise by 0.3% this year, rising further to 1.2% next year and 2.1% in 2025.

The Bank of England’s base rate will also increase this year, but more slowly than the market consensus.

The FCA has said that it expects an average base rate of 3%, with a range between 2.5% and 4%.²

This means that the cost of borrowing money will be higher as banks pass on their costs to customers.

Inflation is likely to remain low in the coming years, which could mean that borrowers face even higher repayments when they renew their loans.

However, there might be some relief for homeowners who have been struggling to pay off their mortgages.

Mortgage lenders are expected to offer lower interest rates on new deals, so borrowers may find themselves able to afford a bigger loan than before.

2. First-Time Buyers Will Have an Easier Time

First-time buyers will have an easier time as high interest rates meant that first-time buyers were met with extreme challenges in 2025, but things are looking up.

While older borrowers experienced historically low rates, things were vastly different for new homeowners.

At the start of the pandemic, 10% deposit products were pulled off the market but have slowly started being reintroduced, though there are still far fewer than the 779 pre-COVID products.

After 13 consecutive months of rises, the average two- and five-year fixed rates now sit at 5.79% and 5.63%*, respectively.³

Furthermore, first-time buyers with a 5% deposit can experience rates as low as 3.09%*, the lowest since 2011. 

Housing prices have sky-rocketed since the start of the pandemic, making it more unattainable to purchase a property.

However, compared to last year, UK house price growth slowed to 5.6%* in February 2023, according to Zoopla's House Price Index.⁴

To achieve a sale, sellers are often having to offer an average discount of 4.5%* on the total asking price.

*While we regularly review our rates, these may have shifted since our last update.

3. There Will Be a Remortgaging Boom

There will be a remortgaging boom in the UK after it took a dip in 2021, with figures dropping to £62bn.

This is as opposed to the pre-COVID £80bn in 2019. These lower figures are partially due to people moving instead of refinancing their existing mortgage. 

Our experts predict an 11% increase, setting the amount lent to £69bn, partly because of the strong housing markets in 2017 and 2020.

Furthermore, interest on debts may be on the rise, which means that homeowners may want to remortgage to consolidate these other debts. 

4. Affordability Rules Could Ease

Affordability rules have eased, so it might be easier to buy a new property in 2025.

The Bank of England relaxed affordability checks for banks in August 2022.

Borrowers are no longer required to prove they’re able to afford a 3% point rise in interest rates in order to qualify for a home loan.⁵

The banks rejected another suggestion to allow lenders to increase the number of large mortgages lent to individuals who can borrow more than 4.5x their salary.

5. Borrowers Will Fix for Longer

Borrowers will fix for longer because of the previous year.

Something interesting about mortgages in 2022 is that more borrowers took out plans with terms that were longer than the typical 25 years.

While this increases interest, monthly payments are significantly less. In March 2022, Habito launched a 40-year fixed-term plan with no exit fees.⁶

If interest rates continue to rise in 2025, the industry can expect to see more borrowers opting for longer fix term plans.

6. Mortgages Will Be Going Green

Mortgages will be going green as environmental concerns continue to be a global reality.

In 2025, the mortgage market has also taken action with over 500 'green' mortgage products now available.⁷

Several lenders have offered special deals for homeowners with energy-efficient properties.

These homeowners are usually required to have an A, B, or C rating on their Energy Performance Certificate (EPC). For the buy-to-let market, a minimum of a C rating is required.

We can expect to see more energy-related deals in 2025, so if you want a better mortgage deal, you may want to consider 'going green'.

7. Now Might Be a Good Time to Refinance

Now may not be a great time to refinance due to the higher mortgage rates available on the market.⁸

With interest rates on the rise in 2025, those who bought over the last few years won't need to refinance.

However, those who bought around 1981 when rates were at their highest⁹ may get a better deal now.

Refinancing can mean lower monthly payments, but may not mean that you'll pay less for the overall life of the loan as you're extending the life of your loan.

Your best bet is to speak to a financial adviser or mortgage broker for advice on refinancing.

8. Price Growth Will Slow Down

Price growth will slow down because stamp duty holiday in 2021 meant that the property market exploded, which caused housing prices to soar.

New buyer priorities and tax savings caused prices to rise by up to 10%, but are likely to drop nearer to 3% to 4% in 2025.

Therefore, 2025 is likely to be a better year for new prospective buyers.

9. Lack of Supply Means Fewer Homes Will Be Sold

Lack of supply means fewer homes will be sold because buyers can expect less choice in 2025, with fewer homes entering the market.

With the Stamp Duty holiday and the end of COVID-19 lockdown in 2021, there was a buyers boom, with nearly 200,000 properties sold in June 2021 alone.⁸

The lack of supply will likely prevent prices from falling too low in 2025 and will keep the market steady.

What's the Bank of England Base Rate?

The current Bank of England base rate is 4% after they voted for an increase in February 2023.⁹

Interest rates hit a record low of 0.10% between March 2020 and December 2021, rose to 3% in December 2022, and has now risen further.

How is the Bank of England Base Rate Set?

The Bank of England's base rate is reviewed and set 8 times every year.

After the meeting, the minutes are released to the public at midday on the closest Thursday after the decision is made.

In January 2023, the Consumer Prices Index (CPI) increased by 10.1%, down from 10.5% in December 2022.¹⁰

Predictions suggest that inflation will drop to 7.4% in 2025, with further drops by mid-2026.¹¹

Common Questions

In Conclusion

With these predictions in mind, those who still want or need to take out a mortgage should consider doing so sooner rather than later.

Drops in house prices, lower offers being accepted, and the stabilisation of mortgage rates present a rather attractive market at the moment.

The longer you wait, the more things could change.

So keep an eye on those mortgage rate predictions to avoid disappointment.