Property expert on whether interest rates should decline again in 2025

The average two-year mortgage rate is at a three-year low at 4.99%, the first time below 5% since the Liz Truss mini-budget, according to Moneyfacts.

However, the question is, will interest rates go down? Mortgage Advisor, John Morris from Pure Property Finance discusses whether this may or may not be the case for the remainder of 2025.

Why have rates changed?

“Firstly, it’s good to look at what exactly is driving this drop. Swap rates have eased, which means lenders can now pass reductions onto borrowers. This was previously held off until rates were a bit more stable.

Base rate cuts also sparked fresh lender competition – typically, when one lender cuts some rates, you start seeing this move across other lenders too, as they don’t want to have a lower uptake compared to competitors.

For some lucky people, this even prompted some deals to fall below 4% this year, especially for those paying a higher deposit.”

Will there be any more changes in 2025?

“It’s great to see that property interest rates are slowly coming down, but I don’t think there will be any dramatic drops as we get to the end of the year – it definitely won’t reach the 2% mark that we had pre-Covid.

There’s some optimism that rates might soften a little bit throughout the year, but it won’t be a dramatic drop. With inflation starting to ease ever so slightly, lenders are still pricing conservatively and are still reluctant to make any huge changes.

The Bank of England base rate is a key driver of interest rates. We’ve started to see this come down consistently, with two members of the MPC most recently voting for a 0.5% cut.

Mortgages may decrease more in the coming months, but won’t reach pre-pandemic levels for a long time.”

Should buyers lock in a fixed-rate deal?

“Some borrowers have opted to sit on variable/tracker rates as mortgage costs trend downwards, to switch to a fixed rate once the market plateaus.

Others who need more payment security or higher lending would be more suited to a fixed rate. This offers a guaranteed monthly payment for a set term, regardless of what happens with the BOE base rate.

Each borrower’s scenario is different. It’s still important to seek advice on what deal suits your scenario best.”