The question of whether mortgage rates will decrease in 2025 is at the forefront of many homeowners’ and prospective buyers’ minds. The UK housing market, after a turbulent few years marked by inflation spikes and sharp interest rate hikes, is now entering a new phase. With the Bank of England’s base rate recently cut from 4.5% to 4.25% in May 2025, and mortgage rates showing signs of stabilization, many are wondering: will mortgage rates go down further in 2025, or have we reached a new normal?
This article provides an in-depth analysis of the current mortgage landscape, the factors influencing rates, expert forecasts, and what buyers and homeowners can expect for the rest of 2025.
The Current State of Mortgage Rates
Recent Trends
Mortgage rates in the UK have been on a downward trajectory since mid-2023. After peaking in June 2023-when the average five-year fixed-rate mortgage for a 75% loan-to-value (LTV) soared to 5.8%-rates have gradually declined. By May 2025, the same mortgage product now averages 5.04%. This reduction has translated into significant savings for borrowers, reversing some of the financial stress experienced during the rate spike.
The current average rates across all lenders, as of May 2025, are as follows:
- 2-year fixed-rate (75% LTV): 4.79%
- 5-year fixed-rate (75% LTV): 5.04%
- 2-year variable rate (75% LTV): 4.75%
- Standard variable rate (SVR): 7.74%
Notably, the UK’s largest lenders-the so-called “big six”-are offering even more competitive rates, with five-year fixed mortgages at an average of 4.19% and two-year fixed rates at 4.27%.
The Impact of Base Rate Cuts
The Bank of England’s base rate is the single most influential factor in determining mortgage rates. It sets the benchmark for the interest rates commercial banks charge each other and, by extension, the rates they offer to consumers. Since August 2024, the Bank of England has cut the base rate several times, most recently to 4.25% in May 2025. These cuts have been motivated by a desire to support economic growth as inflation has moderated.
Will Mortgage Rates Go Down Further in 2025?
Expert Forecasts
Most forecasters agree that while mortgage rates have come down from their 2023 highs, they are unlikely to drop significantly below 4% in 2025. Even if inflation and the base rate edge lower, the consensus is that mortgage rates will remain in the 4-5% range for the remainder of the year.
Richard Donnell, Executive Director of Research at Zoopla, notes that “expectations of lower interest rates are already priced into fixed rate mortgages today.” This means that unless there are unexpected economic shocks or a more dramatic fall in the base rate than currently anticipated, further declines in mortgage rates are likely to be modest.
Economists currently predict that the Bank of England’s base rate could fall to 3.5% by the end of 2025. However, even with this reduction, mortgage rates are expected to hover above 4%. This is because lenders have already factored in anticipated base rate cuts when setting today’s fixed-rate mortgage deals.
Factors Limiting Further Declines
Several factors are likely to keep mortgage rates from falling much further:
- Inflation: Although inflation hit the Bank of England’s 2% target in June 2024, it has since risen slightly to 2.6%. The Bank is cautious about cutting rates too quickly, as inflation remains above target.
- Market Expectations: Financial markets have already priced in expectations of lower rates, limiting the scope for further reductions in mortgage pricing.
- Global Economic Uncertainty: Ongoing global shocks, such as geopolitical tensions, supply chain disruptions, and trade tariffs, continue to influence inflation and interest rates.
Why Did Mortgage Rates Fall in 2024 and Early 2025?
The Decline of Inflation
The sharp fall in mortgage rates since late 2023 can be traced directly to the decline in inflation. From a high of 6.3% in September 2023, inflation dropped to 4.2% by December and reached the 2% target in June 2024. Lower inflation reduces the need for the Bank of England to keep interest rates high, allowing for base rate cuts that filter through to mortgage pricing.
Monetary Policy Response
In response to falling inflation, the Bank of England began cutting its base rate in August 2024, with additional cuts in November 2024, February 2025, and May 2025. These moves were designed to support economic growth and ease the burden on borrowers.
Lender Competition
As the cost of funding for banks has fallen, competition among lenders has intensified. Major banks have been able to offer more attractive mortgage rates, particularly to borrowers with larger deposits and strong credit profiles.
The Role of Affordability Testing
What is Affordability Testing?
When applying for a mortgage, borrowers are not only assessed on the actual rate they will pay but also on their ability to afford repayments if rates were to rise. This is known as “stress testing,” and it is designed to ensure borrowers can continue to make payments even if interest rates increase.
Recent Changes and Their Impact
Since 2022, many lenders have been stress-testing borrowers at rates as high as 8-9%. This has made it difficult for many would-be buyers, especially first-timers, to qualify for a mortgage without a substantial deposit.
However, there is a growing trend toward relaxing these stress tests. If average mortgage stress rates return to pre-2022 levels of 6.5-7%, this would boost buying power by 15-20%. For example, an average first-time buyer currently needs to prove they can afford monthly repayments of £1,550 at an 8.5% stress rate. If the stress rate drops to 6.5%, the required repayment falls to £1,275-a significant reduction that could bring homeownership within reach for more people.
This relaxation is expected to support demand and increase sales volumes, even if actual mortgage rates remain in the 4-5% range.
Supply, Demand, and House Prices in 2025
Increased Supply
The supply of homes for sale in the UK is currently 12% higher than a year ago. This increase is due to more sellers entering the market, many of whom are also buyers looking to move. Greater supply means more choice for buyers and increased competition among sellers.
Buyer Power and Price Negotiation
With more homes on the market, buyers have more negotiating power. Sellers whose properties are slow to attract interest are more likely to accept lower offers, keeping price rises in check. This dynamic is expected to persist throughout 2025, providing some relief to buyers facing higher borrowing costs.
Regional Variations
Affordable areas are seeing the strongest growth in sales activity. In Wales, sales are up 14% year-on-year, while the North West and North East have both seen 10% growth. These regions, with their lower average house prices, are proving especially attractive to buyers in a higher-rate environment.
What Does This Mean for Buyers and Homeowners?
For First-Time Buyers
First-time buyers have faced significant challenges over the past two years, with higher mortgage rates and stricter affordability tests making it harder to get on the property ladder. The recent relaxation of stress testing, combined with a wider choice of homes and more stable mortgage rates, should make it easier for first-time buyers to secure a mortgage in 2025.
However, buyers should not expect rates to fall dramatically. Budgeting for a mortgage rate in the 4-5% range remains prudent.
For Homeowners Remortgaging
Homeowners coming to the end of fixed-rate deals taken out before 2022 will still face higher rates than they are used to, but the worst of the rate shock appears to be over. Those remortgaging in 2025 will find rates have come down from their 2023 peak, and increased competition among lenders may offer some opportunities to shop around for better deals.
For Investors and Landlords
Buy-to-let investors have also been hit by higher borrowing costs, but the stabilization of rates and increased supply may present new opportunities. However, stricter lending criteria and ongoing regulatory changes mean investors will need to be diligent in assessing the viability of new purchases.
The Broader Economic Context
The Importance of Inflation
Inflation remains the key driver of interest rate policy in the UK. The Bank of England’s primary mandate is to keep inflation close to its 2% target. While inflation has moderated, it is still running slightly above target at 2.6%. This means the Bank is likely to proceed cautiously with further rate cuts, balancing the need to support growth with the risk of reigniting inflation.
Global Uncertainties
Global events continue to cast a shadow over the UK economy. Wars, pandemics, and trade disruptions can all impact inflation and, by extension, interest rates. While the outlook for 2025 is generally positive, unexpected shocks could change the trajectory of both base rates and mortgage rates.
What Could Cause Mortgage Rates to Fall Further?
While the consensus is that rates will remain in the 4-5% range, there are scenarios that could lead to further declines:
- A Sharper Fall in Inflation: If inflation were to drop more quickly than expected, the Bank of England could cut the base rate more aggressively, leading to lower mortgage rates.
- Weaker Economic Growth: A slowdown in economic growth could prompt the Bank to ease monetary policy further to stimulate activity.
- Increased Lender Competition: If banks become more aggressive in competing for market share, they may be willing to accept lower margins, resulting in lower rates for borrowers.
However, these scenarios are not the base case for most analysts.
What Could Prevent Mortgage Rates from Falling?
Conversely, several factors could keep rates elevated or even push them higher:
- Persistent Inflation: If inflation remains stubbornly above target, the Bank of England may be forced to keep rates higher for longer.
- Global Economic Shocks: Escalating geopolitical tensions, supply chain disruptions, or other shocks could put upward pressure on inflation and interest rates.
- Tighter Lending Standards: If lenders remain cautious and continue to stress-test borrowers at high rates, access to the best deals may remain limited.
Practical Advice for Buyers and Homeowners
Locking in Rates
With mortgage rates expected to remain relatively stable, borrowers may wish to consider locking in a fixed-rate deal, especially if they value certainty over monthly payments. While rates may edge lower if the base rate falls further, the scope for significant reductions appears limited.
Shopping Around
Competition among lenders means there are often significant differences between the rates offered by different banks. Borrowers should shop around and consider using a mortgage broker to find the best deal.
Preparing for Affordability Tests
Even with the relaxation of stress testing, lenders will continue to assess borrowers’ ability to repay. Ensuring a strong credit profile, minimizing other debts, and maximizing deposit size can all improve the chances of securing a favorable mortgage.
Conclusion: A Year of Stability, Not Dramatic Decline
After a period of rapid increases and subsequent declines, UK mortgage rates appear to be entering a phase of stability. The base rate cuts by the Bank of England have brought some relief to borrowers, but the era of ultra-low mortgage rates is unlikely to return in 2025. Most experts agree that rates will remain in the 4-5% range for the rest of the year, with only modest declines possible if the base rate falls further.
The relaxation of affordability testing and increased housing supply are positive developments that should support market activity, particularly for first-time buyers and those in more affordable regions. However, borrowers should remain cautious, budgeting for rates at current levels and preparing for the possibility of further economic shocks.
In summary, while mortgage rates are unlikely to fall dramatically in 2025, the market is becoming more favorable for buyers than it has been in recent years. Stability, rather than sharp declines, is the most likely scenario for the year ahead.
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