Six mortgage predictions for 2025 – from interest rates to first-time buyer schemes (Image: Getty)
As 2024 comes to a close, experts are turning their attention to what 2025 might bring for the housing and mortgage markets.
While the year began with challenges, the latter months saw some relief as the Bank of England reduced interest rates twice – the first cuts since 2020.
However, with inflation rising and expected to increase further next year following Chancellor Rachel Reeves’ Autumn Budget, the Bank may take a more cautious approach to rate cuts in order to maintain economic stability.
This could mean mortgage holders may not see as much of a reduction in their monthly repayments as previously anticipated, leaving those with variable or tracker mortgages still under financial pressure.
So, what could 2025 hold for the market? Online Mortgage Advisor consulted 21 industry professionals, including in-house brokers, to forecast key trends for the year ahead. Here’s what they predict.
READ MORE: ‘Outdated’ mortgage system locks thousands of Brits out of homeownership
The latter months of 2024 saw some relief as the Bank of England reduced interest rates twice (Image: Getty)
What could the Bank of England Base Rate be by the end of 2025?
The Bank of England made two reductions to the Base Rate in 2024, bringing it from a 16-year high of 5.25% down to 4.75% by November.
When Online Mortgage Advisor asked what the rate might be by the end of 2025, the panel presented a range of answers, given the uncertainty following the Autumn Budget and the return of Donald Trump to the White House in 2025.
12 experts predict interest rates will fall within the 3-4% range by the end of next year, with the remaining nine predicting they will remain in the 4-5% range.
The Office for Budget Responsibility (OBR) said it expects the Bank of England to drop the base rate to 3.5% by 2030 in its Economic and Fiscal Outlook published in October.
Tom Stevenson, mortgage correspondent at Online Mortgage Advisor said: “This is slower than many mortgage holders would like and is something to keep an eye on as the year unfolds. Given the instability in the Middle East and the potential impacts of tariffs by the incoming Trump administration, the Base Rate could rise in 2025, even if none of our experts think it will.”
Lenders raised interest rates in response to the hefty tax increases announced in the Autumn Budget (Image: Getty)
Will mortgage rates go up or down?
Following significant tax increases announced in the Autumn Budget, lenders raised their rates in response. The question now is whether this trend will continue into 2025, or if mortgage rates will begin to decline again.
Out of the experts surveyed, 18 predict that rates will fall in the new year, while three believe they won’t.
Mr Stevenson said: “Rates could fall as early as January if the Bank of England revises the base rates downwards at their next meeting. However, the market is volatile and uncertain as we wait to see the impacts of the Autumn Budget on the economy.”
What will the average rate on a two-year fixed deal be by the end of 2025?
While most experts anticipate a drop in rates in 2025, predictions for the average rate on a two-year fixed deal by the end of the year were split.
11 experts said the rate will fall within the 3-4% range, while 10 predicted it will be in the 4-5% range.
Mr Stevenson said: “Our expert’s mixed responses highlight the volatility inherent in the mortgage market at present and the uncertainty surrounding where rates will be in the coming year.”
Will house prices increase in 2025?
There was near unanimous agreement, with 19 of the 21 experts predicting house prices will rise in the new year.
Mr Stevenson said: “Based on historical evidence, this is arguably one of the most surefire predictions in the housing market. House prices have tended to rise year on year, and it’s unlikely 2025 will be any different.”
Will inflation increase in 2025?
The majority of experts agreed on this point, with 16 predicting that inflation will rise in the new year, while the remaining five disagree.
Most believe inflation will increase slightly but ultimately return to around 2% – the Bank of England’s target.
Mr Stevenson said: “The primary concern is that Trump’s return and his threatened tariffs cause inflation to rise faster than expected, which might cause the Bank of England to raise interest rates. Again, this highlights the current market uncertainty and volatility and indicates that external shocks can have a major impact on the UK.”
Will the Government introduce a new first-time buyer scheme in 2025?
Since the Help to Buy scheme ended in 2023, many first-time buyers have been hoping for a similar initiative to help them enter the property market.
However, most experts predict there won’t be a new scheme in 2025, with 17 forecasting no change. The remaining four believe one may be introduced.
Although the government has pledged to build 1.5 million homes by 2029, this commitment does not include a new first-time buyer scheme.
Mr Stevenson said: “Our experts were unanimous in their verdict and feel the Government’s priorities will be elsewhere in the new year.”
However, the mortgage expert noted there are still schemes first-time buyers can access to help them get on the property ladder, such as Deposit Unlock, the First Homes scheme and the Mortgage Guarantee Scheme.
Aaron Forster, director at Find The Right Mortgage, commented: “2025 will be a busy year for mortgages especially remortgages. It’s set to have the largest volume of customers of fixed rate deal maturities.”
He added: “While inflation may start to rise slightly in 2025, with Trump in power and the cost of goods increasing, it’s still likely we will see interest rates fall, albeit slower than what was originally predicted a couple of months ago. This will help stimulate the market and lead to a slight increase in property prices.”
