As the Bank of England prepares to cut its base interest rate, predictions suggest that mortgage rates could plummet to as low as 3.5% by the end of 2025. The anticipated reduction from 4.5% to 4.25% is expected to occur on May 8, 2025, and could herald a new era for homebuyers and those looking to remortgage.
Experts are optimistic that the downward trend in mortgage rates will continue throughout the year, with financial markets forecasting multiple further cuts that could send rates below 4%. "If the base rate comes down, lower mortgage rates are possible," noted Aaron Strutt, product and communications director at Trinity Financial. However, he cautioned that the broader economic context is not all rosy. "The big picture isn’t one of amazing news, because the base rate is more likely to fall if the economy is performing badly," he added.
For first-time buyers, the prospect of lower mortgage rates is particularly encouraging. Nick Mendes, mortgage technical manager at John Charcol brokers, stated that by the end of 2025, leading two-year fixed rates could settle around 3.5%, with five-year fixes close behind at approximately 3.6%, especially for borrowers with a 40% deposit.
However, as mortgage rates are influenced by various factors, including swap rates—which reflect long-term predictions for future base rates—experts urge potential borrowers to act swiftly. "Fixed mortgage rates are expected to continue their gradual decline throughout 2025," Mendes said, emphasizing that borrowers should not wait for rates to collapse but rather secure good value based on their individual needs.
In addition to these developments, Barclays recently reported that rent and mortgage spending rose by 5.2% year-on-year in April, although this was a slight reduction from 5.4% in March. Consumer confidence in the UK housing market remained steady at 29%, reflecting ongoing speculation about the Bank of England's impending base rate cut.
Interestingly, one in four mortgage holders are actively taking steps to reduce their mortgage term through overpayments, averaging £221 per month on top of their regular repayments. These proactive measures could potentially reduce mortgage terms by an average of four years.
However, rising council tax has emerged as a significant concern for homeowners. Approximately 30% of individuals surveyed reported an increase in housing costs over the past year, with council tax cited as the primary factor. New regulations allowing councils to impose a 100% premium on second homes have particularly impacted 7% of homeowners who own additional properties, leading to an average increase of £840.10 in annual bills. Consequently, 35% of second homeowners are now considering selling their additional properties.
Despite these challenges, confidence among renters regarding their ability to enter the housing market has shown signs of recovery. In April, a fifth of renters expressed optimism about owning a home within the next five years, a noticeable increase from 15% in March. Additionally, the proportion of renters who view obtaining a mortgage as a barrier to homeownership has decreased from 21% to 18%.
Barclays’ head of mortgages, savings, and insurance, Jatin Patel, commented on the resilience of mortgage demand, noting that there are encouraging signs that young renters feel more confident about entering the property market, even amidst high interest rates and an uncertain economic landscape.
"For mortgage holders fortunate enough to be able to make overpayments, it can be a great way to reduce the length of your loan term or minimize the impact of possible rate shocks coming after a lower fixed deal," Patel advised. He acknowledged that the Bank of England’s decision on May 8 will play a crucial role in shaping market sentiment, but he also highlighted that there are positives to be found amidst the current turbulence.
Looking ahead, Yorkshire Building Society has been proactive in responding to the changing market conditions by offering a variety of mortgage products. As of May 7, 2025, the society lists 53 different mortgage products, with fixed rates starting at 4.37% for remortgages with a £495 setup fee for its five-year products. For first-time buyers, options include a two-year fixed rate at 4.07% with a £995 product fee and 75% loan-to-value (LTV), and a cashback option at 4.32% with no product fee.
As the economic landscape continues to shift, borrowers are encouraged to weigh their options carefully. Whether opting for a mortgage from a bank or a building society like Yorkshire, individuals should compare rates and terms to find the best fit for their circumstances. Ultimately, the best mortgage product will depend on individual needs and preferences, and working with a mortgage broker can provide valuable insights into navigating the market.
As the situation evolves, potential borrowers are reminded of the importance of acting decisively. With the prospect of lower mortgage rates on the horizon, now may be the time to explore options and secure a favorable deal before any changes in the market occur.
