Will Mortgage Rates Go Down in 2025?
Written on 20 December 2024 by
Yes, mortgage rates are expected to decline in 2025, but the pace and extent of this drop will depend on several factors. The current expectation is that the MPC (Monetary Policy Committee) will reduce rates by 25 basis points each quarter until mid-2025. However, projections suggest rates may only fall to around 3.5% by early 2026.
A key factor in this scenario is the role of swap rates, which lenders use to price fixed rate mortgages and manage risk. Swap rates reflect the cost for lenders to borrow money over the term of a mortgage and indicate the market's expectations for future interest rates. When swap rates rise - typically due to expectations of fewer interest rate cuts - mortgage rates often follow suit, even if the Bank Base Rate is reduced.
The extent of future rate reductions will hinge on stable market conditions. Crucially, this includes inflation consistently staying below the Bank of England's 2% target. A settled economic environment would give lenders the confidence to offer more competitive rates.
What Should First Time Buyers Do?
Buying your first home is a huge milestone, and being well-prepared can make the process much smoother.
Review Your Finances
Start by reviewing your finances. Figure out how much you can realistically save for a deposit and what you can comfortably afford for monthly repayments. While most lenders require at least a 5 - 10% mortgage deposit, aiming for more can open the door to better mortgage deals. It’s also worth speaking to a mortgage broker early on, as they can help you navigate the range of schemes available for first time buyers. Some schemes offer higher income multiples, allowing you to borrow more and potentially secure your dream home, while others cater to buyers with smaller deposits - sometimes as low as 1% or even 0%.
Check Your Credit Score
Another essential step is checking your credit score. Address any issues upfront to avoid delays when you’re ready to apply. If your credit score isn’t in the best shape, don’t worry. Focus on paying off debts and correcting any inaccuracies on your credit report to strengthen your position.
Research Properties and Refine Your Budget
Once your finances are sorted, start researching the property market to see what’s realistic within your budget. Getting a mortgage in principle is a smart move, as it not only gives you a clear borrowing limit but also shows sellers that you’re serious and ready to proceed; this is especially important in a competitive market. Remember to factor in extra costs like solicitor fees, surveys, moving expenses and Stamp Duty. If you’re aiming to complete before any Stamp Duty changes, make sure to allow enough time - typically 6 - 8 weeks for straightforward purchases, but potentially longer if you’re in a chain.
When house hunting, be clear on your priorities. Is location your top concern, or are size and specific features more important? With some thoughtful preparation, a realistic approach, and a clear timeline, you’ll be ready to take your first steps onto the property ladder with confidence.
What Should Those Coming to the End of Their Mortgage Do?
Review Your Current Mortgage
If your mortgage term is nearing its end, it’s important to plan ahead to ensure you don’t end up on your lender’s SVR (standard variable rate), which is typically significantly higher than the lenders equivalent fixed or tracker rates. Start by reviewing your current deal and figuring out how much time you have left. Ideally, begin looking into your options around 6 months before your deal ends. This gives you plenty of time to shop around and lock in a new rate.
Sound complicated? Then speak to a mortgage broker like John Charcol. We can help you understand your current mortgage situation, compare deals across the market and advise you on whether to remortgage with a new lender or stick with your current one. Sometimes your existing lender may offer a competitive product transfer, saving you the hassle of switching providers. However, if you’re looking for a better rate or more flexibility, moving to a new lender could be worth it.
Consider What’s Important and Current Situation
You should also consider your financial goals and current situation. For example, if your income has increased, you might want to overpay and reduce your mortgage term. Alternatively, if money is tighter, you could explore options to lower your monthly payments by extending your term or switching to a part repayment and part interest-only arrangement. Keep in mind any associated fees, such as early repayment charges or arrangement fees, as these can impact your overall costs.
Don’t Miss Out on a Low Rate
Finally, with interest rates fluctuating, securing a rate sooner rather than later could protect you against potential increases. Many lenders allow you to secure a new deal several months in advance, so even if your current deal hasn’t quite finished, you’ll have a great new rate secured.
What’s more, securing a deal early doesn’t mean you’ll miss out in the event mortgage rates come down before you’re due to switch products. If there are better deals available than the one you settled on, your mortgage advisor will work on securing you a lower rate.
How Can People Make Sure to Get the Best Deal on Their Mortgage
Securing the best mortgage deal starts with preparation and research.
Improve Your Financial Situation
First, take a close look at your financial situation. Lenders assess your income, outgoings and credit history to determine how much they’re willing to lend. A strong credit score puts you in a favourable position, so check yours early and address any issues like missed payments or inaccuracies. Reducing your existing debts and ensuring you’re registered on the electoral roll can also improve your profile.
Compare Mortgage Deals
Next, shop around for deals. Speaking to a mortgage broker like John Charcol can be invaluable - a broker has access to a wide range of lenders and may have deals that aren’t available directly to borrowers. We’ll also help match you with the best product for your circumstances, whether that’s a fixed rate, tracker, or discount mortgage. If you prefer to go it alone, comparison websites can give you a good starting point but be sure to look beyond just the interest rate. Consider additional fees like arrangement, valuation, or early repayment charges, as these can affect the overall cost of the mortgage.
Lock in a Deal Early and Regularly Review
Timing can also be crucial. If interest rates are rising, locking in a deal early - even before your current mortgage ends - can save you money. Many lenders let you secure a rate up to 6 months in advance. On the other hand, if rates are falling don’t be complacent: still lock in a deal and regularly review. Keeping an eye on the market and staying flexible could help you benefit from better terms.
Increase Your Deposit – Even a Little Can Help
Remember: don’t overlook the importance of your deposit. The bigger your deposit, the lower your LTV (loan-to-value), which typically unlocks better rates. Even increasing your deposit by a small amount to move to a lower LTV bracket can make a big difference. By planning ahead, staying informed, and seeking expert advice, you can set yourself up to get the best mortgage deal possible.
Category:Nicholas Mendes
