Will mortgage rates go down in 2025 UK?

On 8th May 2025, the Bank of England’s Monetary Policy Committee (MPC) reduced the base rate from 4.50% to 4.25% — the lowest level since June 2023. This followed their March decision to hold the rate steady at 4.50%, after a cut from 4.75% in February. The May reduction reflects ongoing concerns around slowing inflation and its impact on economic growth.

Throughout 2024, UK inflation steadily declined — from 4.4% at the end of Q1 to 3.9%, before reaching the Bank of England’s 2% target by June. In October, inflation fell further to 1.7%, its lowest level in over three and a half years.

This marked decline followed a period of persistently high inflation in 2023, after peaking at 11.1% in October 2022. In response, the Bank of England raised the base rate multiple times to control price growth. While inflation remained above the 2% target for much of 2024, it dropped to 2.2% by August and then below target in September at 1.7%.

However, in early 2025, inflation climbed steadily — rising to 2.5% in January, 3.0% in February, and then jumped to 3.5% in April. Despite this fluctuation, the Bank reduced the base rate to 4.25% on 8th May 2025, suggesting a cautious return to rate cuts as inflationary pressures moderate. This could lead to greater mortgage rate stability moving forward.

Interest Rate Predictions

Looking ahead, most analysts agree that UK interest rates have passed their peak, with the base rate reaching a high of 5.25% in August 2024 before beginning to decline. Now below 5% for the first time since June 2023, earlier forecasts of rates climbing to 6% have been revised downward, reflecting a more subdued economic outlook. This shift suggests that interest rates may continue to ease, offering potential relief for borrowers following the August peak.

Current projections anticipate one to two further 0.25% base rate cuts during 2025. However, the recent surge in inflation — reaching 3.5% in April — may delay the timing of these cuts.

With the base rate having already fallen to 4.25% in May, the mortgage market in 2025 is entering a period of transition. Let’s explore what this evolving rate environment could mean for homeowners and prospective buyers.

Mortgage Rate Predictions 2025

Mortgage rate forecasts for 2025 continue to point towards further reductions, largely driven by base rate changes, inflation trends, and broader global economic pressures. As of May 2025, the average rate for a two-year fixed mortgage has eased to around 4.39%, while five-year fixed deals now average approximately 4.41%. Although these rates have declined since earlier in the year, they remain significantly higher than pre-2022 levels and still echo the elevated costs last seen around the time of the 2008 financial crisis.

However, the base rate has now dropped to 4.25% following the Bank of England’s decision on 8th May 2025. This marked the second cut of the year, after an earlier reduction from 4.75% to 4.50% in February. The March meeting maintained the 4.50% rate, signaling caution amid inflation fluctuations.

These successive cuts suggest mortgage rates may continue to trend downward, with some analysts predicting rates could approach or even dip below 4% in the latter half of 2025. That said, the Bank of England has warned against assuming a steady path of reductions. With inflation still above target in early 2025 and global economic uncertainty lingering, the pace and scale of future rate cuts remain uncertain.

Leading Economists Predictions

Following the Bank of England’s decision on 8 May 2025 to reduce the base rate to 4.25%, economists have adjusted their projections for the remainder of the year. The International Monetary Fund (IMF) now anticipates three additional rate cuts in 2025, potentially bringing the base rate down to 3.5% by year-end. This outlook was previously influenced by signs of easing inflation, but the April uptick to 3.5% has introduced fresh uncertainty among policymakers, despite the Bank’s earlier decision to hold the rate steady at 4.5% in March.

Morgan Stanley supports this revised projection, forecasting five 0.25% cuts throughout 2025, which would lower the base rate to 3.5% by the end of the year. If these predictions materialise, mortgage rates—currently averaging between 4.3% and 4.5%—could decrease to approximately 3.5% by December, offering relief to borrowers.

With expectations of further rate reductions, 2025 may present more favorable conditions for the mortgage market, particularly for individuals considering remortgaging or securing new loans. However, it’s important to note that the outlook remains sensitive to unforeseen changes in the global economy.

Based on current market predictions, I expect that the Bank of England will reduce the base rate by another 0.25% two to three more during times in 2025.

However, this outlook depends on inflation coming back under control, though the latest data shows it jumped to 3.5% in April — moving further away from the Bank of England’s 2% target. If inflation remains under control, these rate cuts could further ease borrowing costs in the coming months.

As the base rate drops, we’re starting to see a shift towards 2-year and 3-year fixed rates becoming more competitive than longer 5-year deals—the opposite of what we’ve seen over the past 18 months. Mortgage rates have already fallen from 5% to around 4%, and as we move further into 2025, they’re predicted to drop even further, potentially below 4%.

I’m also seeing growing interest in tracker mortgages for 2025, along with the likelihood of new, innovative products from lenders. These could include tracker deals that offer the flexibility to switch to a fixed rate during the term without incurring extra fees. – Steve Roberts

Fixed Rate Mortgages: Should You Fix Your Mortgage Rate Now?

In recent weeks, many mortgage lenders have withdrawn numerous fixed-rate deals and raised rates on their most competitive products, responding to concerns about potential further rate hikes by the Bank of England.

With the BOE base rate now at 4.25% and market sentiment suggesting possible increases, it may be wise to consider fixing your mortgage rate if you’re concerned about rising interest rates and managing monthly repayments.

Even if you’re currently on a fixed-rate mortgage set to expire in six months, you may still lock in a competitive rate now to begin when your current deal ends, avoiding early repayment charges from your existing lender.

• Should you get a 2 or 5 year Fixed Mortgage?

How is the Bank of England base rate set?

The Monetary Policy Committee of the Bank of England is responsible for setting its official base rate. Meeting approximately every six weeks, MPC meets to decide on any potential changes and publishes its decision and meeting minutes on its website.

The decision on setting the base rate is informed by several economic indicators, including employment, inflation, and GDP. The current Governor of the Bank of England Andrew Bailey continues to use an established list of 18 economic indicators as part of his Monetary Policy Committee decision-making process outlined by former Governor Mark Carney.

When is the market predicting mortgage rates will change?

The market’s outlook for mortgage rates has shifted significantly in recent months. On 8th May 2025, the Bank of England (BoE) reduced the base rate to 4.25%, following earlier cuts from 4.75% in February and a hold at 4.50% in March. These decisions have been largely influenced by a softening economic outlook and a downward trend in inflation — although price pressures remain above the Bank’s target.

The UK’s annual inflation rate rose to 3.0% in January, and after a brief plateau, jumped to 3.5% in April, moving further away from the BoE’s 2% target. While this downward trajectory is promising, inflation is still not fully under control, and the BoE has signalled it will proceed cautiously with further rate cuts.

• What is the average mortgage in the UK?

What are the key indicators that will impact interest rate changes?

The Bank of England uses several economic indicators when deciding whether to adjust interest rates, including:

1. Inflation: UK inflation rose to 3.5% in April 2025, up from 3.0% in February and 2.5% in January. This jump was driven by higher food and energy prices. The decline was driven by lower fuel costs and slowing increases in housing and utility prices. Although inflation is easing, it remains above the Bank of England’s 2% target.

2. Base Rate Changes: On 8th May 2025, the Bank of England cut the base rate by 0.25 percentage points to 4.25%. This followed earlier cuts in February and reflects efforts to support economic growth amid global and domestic pressures.

3. Economic Growth: UK GDP grew by 0.1% in Q1 2025, following a 0.1% contraction in Q4 2024. Growth remains fragile, with consumer spending and business investment showing signs of strain.

4. Bank of England Forecasts: The Bank has slightly lowered its GDP forecast for 2025 to 0.75%. While modest growth is expected in the second half of the year, uncertainties around inflation and business confidence continue to weigh on the outlook.

5. Unemployment: The unemployment rate rose slightly to 4.4% in early 2025. Hiring has slowed, particularly in the private sector, with many businesses pausing recruitment due to economic uncertainty.

6. Wage Growth: Regular pay (excluding bonuses) increased by 5.9% annually in the three months to February 2025. While this supports household incomes, it could contribute to inflation if not balanced by productivity growth.

7. Economic Outlook: The UK economy is expected to grow by around 1.2% in 2025. However, persistent inflation, rising unemployment, and weak business sentiment may limit the pace of recovery and influence future interest rate decisions.

What to do with my mortgage in 2025?

The ability to remortgage and fix your mortgage at the same sort of rate has become more difficult over recent years as the rules surrounding the affordability checks when applying for a mortgage were tightened leaving some borrowers stranded on their existing deals.

It’s important to calculate the impact of future interest rate rises and seek advice from a mortgage expert ahead of time by following the steps below. Whether you are on a tracker mortgage, variable rate mortgage, or looking to remortgage your existing fixed rate deal that is coming to an end the steps below will take you a few seconds but could prevent your mortgage repayments crippling your finances in the future and help you secure fixed mortgage rates while they are still available.

• How soon can you remortgage before your fixed rate ends?

Step 1 – Determine your current mortgage situation

Before you can determine the best course of action for your mortgage, it is important to understand your current situation. This information includes what type of mortgage (variable, fixed rates, or tracker rates), your current rate, and loan term. If you need help understanding these details further, contact your mortgage lender or review your documents to gain a clear picture.

Step 2 – Calculate the impact of an interest rate increase on your mortgage payments

An interest rate rise calculator allows you to quickly assess the potential effects of an increase in interest rates on your monthly mortgage payments. Simply input details such as loan amount, term length, and current interest rate before increasing it in various scenarios to calculate potential changes in monthly payments based on different interest rate scenarios and figure out how much additional funds would need to be set aside in case an increase takes place. This tool gives a good indication of what to budget for in case an interest rate increase occurs.

Step 3 – Seek advice from a mortgage expert

If an interest rate increase will have an adverse impact on your mortgage payments, consulting a mortgage expert is highly advised. They can assess the housing market as well as your current financial situation and assist in understanding potential solutions such as fixed rate or alternative types of loans; also helping find you the most competitive rates and terms possible according to your unique situation.

Step 4 – Act quickly if you decide to fix your mortgage rate

When considering fixing your mortgage rate as the optimal course of action, acting swiftly is key. The lowest fixed-rate mortgages offers often vanish quickly when there are indications from the Bank of England of potential rate hikes; take immediate steps to secure one before it disappears! A mortgage expert can help compare different mortgage deals and assist in the application process to make sure you secure an excellent rate.

The best way to find out your mortgage options

One way to find the right mortgage options for you is to collaborate with an independent mortgage adviser. While price comparison sites may seem like an effective solution, it’s important to remember that many deals only available through advisers aren’t listed here and may only appear after credit checks have taken place – which could negatively impact future applications for loans.

Due to these considerations, working with an independent mortgage adviser is often beneficial; they can assist in finding you the most beneficial mortgage deal from lenders that will actually lend to you – approximately 70% of borrowers opt for this route. To start off your journey toward refinancing, reach out to an adviser or mortgage broker. With fixed-rate deals being withdrawn on a daily basis, it’s never been more important to be on top of your mortgage options before we see further interest rate rises.

Further reading

• What happens when my fixed rate mortgage ends?
• The Different Types of Mortgages Explained
• 2023 see’s a surge in 35-Year and 40 Year Mortgage Terms
• House Prices Falling Boosts Mortgage Product Transfers

FAQs