If you’re thinking about buying a home or remortgaging this year, you’re probably wondering where mortgage interest rates are headed. The good news? Inflation is dropping, and that could mean interest rates might follow. But it’s not quite that simple.
Why Do Interest Rates Matter?
Interest rates determine how much you pay on your mortgage each month. When rates go up, your payments get higher. When they go down, you save money. Simple, right? But predicting where rates will go is a little trickier.
The Current State of Mortgage Rates
At the start of 2025, mortgage rates are lower than they were a year ago.
- A two-year fixed mortgage is averaging between 4,39% and 5.69% depending on the loan to value (LTV)% (compared to 93% in January 2024).
- A five-year fixed mortgage is averaging 4.98% (compared to 5.55% a year ago).
This drop is thanks to two interest rate cuts in 2024. However, things could change depending on what happens in the economy.
Could Rates Go Down Further?
Inflation is moving in the right direction, which is good news for borrowers. The Bank of England (BoE) aims to keep inflation at 2%, and in recent months, it has been getting closer to that target. If inflation stays under control, there’s a good chance the BoE will cut interest rates further in 2025.
February 6th, the BoE announced a drop to the current Bank of England rate down to 4.5%
Why Aren’t Mortgage Rates Dropping Faster?
Even though inflation is cooling, other factors can push mortgage rates up. One key issue is rising lender costs. When banks and mortgage lenders have to pay more to borrow money themselves, they pass those costs on to customers.
Also, if the economy remains uncertain, lenders may keep mortgage rates higher just in case things take a turn for the worse. So, while we might see small rate reductions, big drops aren’t guaranteed.
What Does This Mean for You?
If you’re planning to buy a home or remortgage in 2025, here’s what you should consider:
- If your mortgage deal is ending soon – Start looking at new rates now. Locking in a deal early can protect you from potential increases.
- If you’re a first-time buyer – Mortgage rates might not drop significantly, but don’t let that stop you from house-hunting. A broker can help you find the best deal available.
- If you’re thinking about fixing your rate – While fixed rates might seem high compared to previous years, they offer security and predictability in an uncertain market.
The Bottom Line
While interest rates might come down slightly in 2025, big reductions are unlikely unless there’s a major economic shift. If you’re looking for a mortgage, it’s a smart move to speak to a broker who can guide you through the options and help you secure the best deal for your situation.
Want tailored advice? Get in touch with our expert team at Clever Mortgages – we’re here to help you navigate the mortgage market and make the best decision for your future!
