UK lenders believe mortgage rates will remain between 4% and 5%
It’s tough to predict what will happen to mortgage rates in 2025. The general consensus is that mortgage rates could remain somewhere between 4% and 5% this year.
Mortgage rates tend to be influenced by the Bank of England base rate, the recent Bank of England rate cut to 4.5% provides some welcome news for home owners. However reductions in mortgage interest rates could be short lived if inflation is not managed effectively in the coming weeks.
What’s concerning is that inflation appears to be creeping up again. The rate of inflation hit 3% in January (up from 2.5% December 2024), this is 1% above the BoE’s target of 2%.
Mortgage market boosted by the return of fixed rate mortgages under 4%
In response to the Bank of England’s interest rate cut to 4.5% Barclays launched a 5 year fixed rate mortgage at 3.99% and Santander followed with new 2 year and 5 year fixed deals at 3.99%.
This is first time in a number of months that fixed rate mortgages have been available for under 4%.
Will other lenders launch fixed price mortgages below 4%?
Barclays and Santander have fired the starting gun for other mortgage lenders to follow, so if you’re looking to buy a property or remortgage it’s worth checking the latest mortgage rates to see if you can secure a deal.
More sub 4% deals could launch in the coming days, although other lenders may hold off to see what happens with February’s inflation figures.
Home owners looking to remortgage face higher rates and monthly payments
If you’ve benefited from 2% interest rates over the past few years and your mortgage deal is up for renewal this year, it’s likely you’ll have to move to a higher interest rate, with higher monthly mortgage repayments.
Remember loan to value has a big impact on the mortgage rates available, so if you have 90%, or higher LTV borrowing against your property, you may struggle to find offers below 5%.
Reduced stamp duty thresholds make it more expensive to buy a home
There is potentially more pain to come as less generous stamp duty rates kick in from April, with the “nil rate” band for first-time buyers reducing from £425,000 to £300,000. Other home-buyers face paying 2% stamp duty over £125,000.
Effectively the cost of buying a home is set to increase for most buyers from April. More first time buyers will see stamp duty kicking in at lower levels. The government could bring over 30% of first time buyers into property tax threshold when you consider average house prices nationwide.
Stamp Duty Thresholds From 1st April 2025:
- Up to £125,000: 0%
- £125,001 to £250,000: 2%
- £250,001 to £925,000: 5%
- £925,001 to £1.5 million: 10%
- Over £1.5 million: 12%
Stamp Duty For first-time Buyers:
- The nil-rate threshold will decrease from £425,000 to £300,000.
- Properties priced between £300,001 and £500,000 will incur 5% stamp duty.
Will mortgage interest rates rise or fall in 2025?
UK and global economic uncertainty in 2025 makes it’s hard to accurately predict potential increases or decreases in mortgage interest rates.
If you are looking to buy a new home in the next few months, or your existing mortgage is up for renewal, it’s definitely worth getting some mortgage quotes now. There is no obligation to sign up to a deal straight away, you have time to wait to see if you can get a better deal, but you will have offers in your back pocket, just in case you need them.
Compare fixed-rate and variable-rate mortgages from UK mortgage lenders.
