NEWS: Are Mortgage Rates Going Down? [May 2025]

08-May-2025

08-May-2025 13:59

in News

by Sam Hodgson

The Bank of England has voted to reduce the base rate to 4.25% on 8th May 2025.

This choice is in line with the government's emphasis on building economic growth and stability in the UK.

While the Bank of England previously maintained a hawkish stance on the base rate to reduce inflation, it's fluctuated over the past 8 months. And this isn't unexpected. While the cost of living crisis seems to have peaked in 2022, economic recovery has been incremental. In fact, the UK's economy grew by only 0.9% in 2024. This is positive news considering the country went into a minor recession in 2023, but we are by no means out of the woods.

In this article, we'll look at how mortgage rates are reacting to the news, with many lenders now offering sub-4% rates in the few weeks building up to the base rate decision.

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Despite the bank rate dropping three times since August 2024, we didn't see significant product rates drops initially, mainly due to the economic uncertainty presented by the Autumn Budget and US Election.

It's common for several legislation changes at once to cause uncertainty, which impacts lender confidence and borrowing costs, but this is usually short-lived.

However, there are now multiple lenders, including Nationwide, offering sub 4% rate mortgages.

While it’s likely that interest rates won’t return to the uber-low levels we saw before 2022, five-year fixes dropping consistently across the board is certainly a sign that there are more reductions to come.

So what does this mean for mortgage rates and affordability going forward?

In this post, we provide expert insight into the latest thoughts from our mortgage brokers, along with insight into what mortgage rates will do next, and how a decrease in mortgage rates could affect your repayments.

What Do Our Experts Say?

George Abouzolof

Senior Finance Broker CeMAP

The immediate impact of a 0.25% reduction will be a drop in mortgage payments for those on base rate trackers. Paying 0.25% less on a £1m interest-only mortgage equates to £2,500 less per year. So, the savings across the mortgage industry could be huge.

Fixed rates are unlikely to follow suit unless government bond yields relax - which they have done month-on-month. Most borrowers are opting for two-year fixes in the hope that rates will continue to drop in the future.

Relations with the US could pose a threat to the economy’s recovery. Trump is highly US-focused, and is prioritising American brands, as well as removing incentives for sustainable tech. This could make trade with US more difficult.

There are signs that US administration could go on a spending spree, which could also have a knock-on effect on us.

However, the overall sentiment has been much more neutral than we might have expected. While some landlords have been put off, for many, it’s business as usual. Investors are looking where they can to make a profit and overcome the current climate.

We’re still seeing a steady influx of first-time buyers and buy-to-lets, which could be a sign of the anticipated rush to purchase ahead of the upcoming stamp duty changes.

Furthermore, we haven’t seen a decrease in foreign investment so far, despite claims that the Autumn Budget would impact this.

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How is the Mortgage Market Affected By Interest Rates?

Here are 3 tables comparing some of the best mortgage rates available on the market from the past 12 months.

You can see how the mortgage market has changed over the last 24 months, and where the rates sit currently:

May 2025

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Remortgage	60%	3.99%	7.24%	£999.00	Yes
5 years	Fixed	Remortgage	60%	3.99%	7.24%	£999.00	Yes
10 years	Fixed	Remortgage	60%	4.49%	7.24%	£999.00	Yes

October 2024

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Remortgage	60%	3.89%	6.80%	£999.00	Yes
5 years	Fixed	Remortgage	60%	3.79%	5.80%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.69%	5.60%	£999.00	Yes

March 2024

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Tracker	Purchase	60%	4.44%	8.74%	£0	No
5 years	Fixed	Remortgage	60%	4.24%	7.99%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.63%	7.99%	£999.00	Yes

September 2023

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Tracker	Purchase	60%	5.39%	8.4%	£999.00	No
5 years	Fixed	Remortgage	60%	5.12%	6.9%	£490.00	Yes
10 years	Fixed	Remortgage	75%	4.91%	6.2%	£999.00	Yes

March 2023

Term	Product	Type	LTV	Rate	Subsequent Rate	Product Fee	ERC
2 years	Fixed	Purchase	60%	4.14%	7.49%	£999	No
5 years	Fixed	Remortgage	60%	3.89%	7.49%	£999	Yes
10 years	Fixed	Remortgage	75%	4.04%	7.49%	£999	Yes

Source: Moneyfacts

When interest rates rise, it becomes more expensive for consumers to borrow money. Naturally, this includes mortgages. Higher interest rates have affected the housing market in a number of ways:

Lower demand - Higher interest rates can make mortgages less affordable for first time buyers, leading to lower demand for homes.
Reduced affordability – Rising rates also affect second property buyers and BTL investors. Their mortgage payments could go up, meaning they may need to raise rent to compensate. Or, their projected rent won't meet the affordability for a mortgage on a new investment property, so they don't buy, reducing demand.

What Mortgage Types Are Most Affected By Interest Rate Changes?

If you have a mortgage with a variable interest rate – a rate that closely follows the Bank of England's base rate - you will have seen your mortgage costs go up from 2022-23.

However, if you're on a fixed-rate mortgage, you might have yet to see changes, depending on the length of your term. But you could still be stung when your deal ends and you do remortgage. Currently, many homeowners on the tail end of a low fixed-rate mortgage are waiting with bated breath in hopes that rates will drop before they remortgage to a new deal.

Other property owners are taking the hit and switching to a variable rate in hopes of switching to a cheaper deal later this year.

Monthly increases in mortgage payments have been more acute for those whose fixed-rate mortgages ended and they have automatically switched to their provider's SVR (standard variable rate) – these are typically the most expensive interest rates to pay.

If you're looking to remortgage in 2025, we recommend comparing fixed and tracker mortgages to see which may be more suitable to you and offer the best available deal.

And if you're currently on a very low rate and want to raise additional finance without remortgaging, a second charge mortgage could help you protect your current deal.

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Are Mortgage Rates Going Down Now?

Now that the Bank of England base rate has been reduced, it's likely that mortgage rates will begin to drop across the board. Fixed rates are beginning to drop under 4% again already, and we could see further reductions depending on whether and when another base rate cut is expected.

Last year, the demand for mortgages was lower, with many prospective buyers holding off until the market was more stable and many would-be buyers simply unable to afford homes amid the elevated costs. Because of this, lenders became more competitive over the smaller mortgage demand, lowering results to attract business.

The current reduction will cut living costs for households across the country, and many financial professionals are optimistic that we'll see another bank rate drop later this year, with mortgage rates to follow.

Related: How bridging loans can help you plug a funding gap and secure your property.

What Do Lower Mortgage Rates Mean for First Time Buyers?

With a potential decline in mortgage rates forecasted, it may be tempting to postpone plans until the lowest rates arrive – this may be true not just for first time buyers, but also those remortgaging.

However, a compromise could be securing a variable rate mortgage, so if rates do go down, you're not missing out.

One piece of positive news for first time buyers is the specialised mortgage products still available – deals tailored to first time buyers specifically - and lower house prices in affordable areas.

The best strategy is to consolidate your finances, understand your borrowing power, and seek a mortgage broker's help to find a deal that best product for you.

How Can You Find an Affordable Mortgage in 2025?

Despite current optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.

We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, give us a call at 0203 900 4322 or book a free consultation below.

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