When it comes to house prices and mortgages, 2024 was a bit of a whirlwind for homeowners and those looking to buy. House prices stayed up. Most spent the year eagerly waiting to see if mortgage interest rates would drop, and the last quarter saw some movement in the right direction for borrowers. However, the cost of borrowing remains high for lots of people.
With the first month of 2025 ending, our experts here at Doctors Mortgages Online have put together our predictions for all things related to mortgages and house prices for the coming year. Keep reading to see what we’ve tipped as the main headlines in 2025.
- Bank of England Set To Decrease Base Rate
The Bank of England’s base rate is essentially what it charges lenders to borrow money to offer their services, like mortgages. In turn, it greatly impacts the interest rates they charge on loans, including mortgages.
The Bank of England meets eight times a year to discuss the base rate, deciding whether it should increase, drop, or hold in a bid to control the rate of inflation. The inflation target is 2%, and when the inflation rate is close to or at its target, the Bank of England might drop its base rate or hold it. Currently, the rate of inflation is 2.5%, which is heading in the right direction; if this continues, a decrease in the base rate is expected, which might have a knock-on effect on mortgage rates.
In August last year, the base rate fell to 5% from 5.25%, the first drop in four years. The rate dropped again in November to 4.75%, with the Bank of England holding the rate in December 2024. We wouldn’t be surprised if the base rate drops to around 4% by the end of 2025, and we expect rate changes to follow a decrease and hold pattern throughout the year. This would be good news for those on tracker mortgages and should mean that the average interest rates on fixed mortgages drop, too, which is good news for those looking to secure a mortgage this year. In 2024, the average rate on a two-year fixed deal fell from 5.93% to 5.62%, which is likely to drop further should the base rate continue to fall.
- House Prices To Rise Steadily
Over time, it’s safe to say that house prices tend to increase, with any dips in the market balancing themselves out. We don’t expect to see any huge sharp rises in the cost of houses in 2025. However, it can be expected that house prices will continue to increase on a steady trajectory.
It’s expected that lower mortgage rates could see house prices go up by around 4% over the course of the year. With stamp duty rules changing in April 2025, it’s unclear right now if this will put a stop to bigger price rises, as the higher the house price, the more tax buyers will have to pay on the purchase.
- Banks and Lenders Set To Increase Mortgage Lending
Last year, track record mortgages that don’t require a deposit became available. Other mortgages designed to make getting on the property ladder easier came out, including the £5K deposit mortgage. The likes of Nationwide have their Helping Hand mortgage that lets eligible first-time buyers borrow up to 6.5 times their salary, meaning they can borrow more to be able to buy their home.
We expect this trend of making it easier to get a mortgage will continue in 2025 as other lenders compete for borrowers to choose them. Ways in which we expect this might happen include:
- Lenders making changes to their affordability calculators
- Changing their criteria to open the door to more potential borrowers
- A shift in mortgage rates
- Making affordability better
- There Might Be Uncertain Times Ahead
Of course, every point on this list is just a prediction of what the Doctors Mortgages Online team thinks will happen in 2025. With Donald Trump back in the White House this month, there is a lot of uncertainty about what the future holds for mortgage holders.
President Trump is proposing to implement trade tariffs, which would reduce exports from the UK to the US, causing a knock-on effect on the UK economy. At the moment, it’s unclear how this could impact the UK marketplace, but it could also have an effect on mortgages and borrowing.
- Global Economy Is Set To Grow
While the UK economy has been in a period of stagnation recently, the global economy is expected to grow in 2025. There are optimistic predictions for worldwide investments and markets to grow, with these set to do better than they have done in recent years. It can be expected that employment, income, production, and sales will all increase, which is good news.
There you have it, our top predictions on what to expect in 2025. Watch this space to see how everything pans out.
