What experts predict will happen to house prices and mortgage rates in 2025
IT’S been a roller coaster of a year in the housing market, so it’s only right to be curious about what’s in store for 2025.
We explain what’s happened this year and ask experts what they predict for mortgage rates and house prices next year.
What’s happened with mortgage rates this year?
It hasn’t been a smooth ride for first-time buyers and those looking to remortgage this year, as mortgage rates haven’t been on a steady path.
In January, the average two-year fix stood at 5.93%, while the average five-year stood at 5.55%.
This dropped down to 5.76% for a two-year fix and 5.34% for a five-year fix in March.
This is because swap rates, which underpin fixed-rate mortgages, have been fluctuating in recent months leading lenders to adjust their rates.
However, in the summer rates began to climb again, before the average two-year fix hit 5.95% and a five-year hit 5.53%.
This is because lenders were waiting in anticipation to see if the Bank of England (BoE) would cut interest rates in August.
This is because figures from the Office for National Statistics (ONS) revealed that inflation hit the BoE’s 2% target.
The Bank’s aim was to bring inflation back under control after months of double digit price rises.
If inflation is steady, there is less pressure on the Bank of England to put the base rate up further.
In August, the BoE cut interest rates for the first time in four years in August this year, with rates currently standing at 4.75%.
Financial markets are predicting that the BoE will cut interest rates further next year.
The Organisation for Economic Co-operation and Development (OECD) has said it expects interest rates to fall back to 3.5% by early 2026.
The central bank was forced to increase rates to tackle soaring inflation, which peaked at 11.1% in October 2022.
But inflation has now fallen to 2.6% in November and has remained around the Bank of England‘s target of 2% for the last six months.
This is what has led the markets and experts to predict further interest rate cuts next year.
For some households, however, there could still be a nasty shock when it comes to mortgage repayments.
Between one million and 1.5 million people are set to see a second increase in rates, having already fixed to a higher price since interest rates started rising in the second half of 2021.
But millions of homeowners will want to know what will happen with rates in the future.
And if you’re looking to buy or sell, you’ll be keen to know what’s happening with house prices.
We spoke to experts to find out what they think will happen to interest rates and house prices next year.
What will happen to mortgage rates in 2025?
Nicholas Mendes, mortgage technical manager at broker John Charcol, said that while mortgage rates are expected to go down, the pace and the extent of the drop will depend on several factors.
He said: “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 base bank 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.”
This means that those looking for a fixed-rate mortgage may also find they are able to secure better deals as these rates are based on future market predictions
This is because the BoE base rate is often used by high street banks to set the rates they offer to customers on things like mortgages.
But while the base rate is likely to fall, it will still be higher than in recent years.
Those with low interest rate mortgages coming to an end in 2025 will still face a considerable jump in their monthly payments.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
I’m a first-time buyer – what should I do?
Karen said that affordability will still be a huge barrier for budding first-time buyers.
Record high rents and the rising cost of living have made it even harder to save enough to buy a first home.
Plus, stamp duty changes coming into effect in April 2025 could make things even trickier.
From next Spring, stamp duty rates in England and Northern Ireland will revert to previous levels, with the “nil rate” band for first-time buyers reducing from £425,000 to £300,000.
“This could result in an additional £6,250 of stamp duty for a typical first-time buyer in London,” Karen said.
“Despite these challenges, getting on the housing ladder is generally a good move if it’s affordable, as it allows buyers to build equity over time rather than continuing to rent.”
I’m coming to the end of my mortgage – what should I do?
David Hollingworth, associate director of L&C Mortgages, said homeowners could be checking when their deals is coming to an end so that they can start planning ahead.
He added: “It is possible to start shopping around for a new deal as much as six months before the end of the deal but for most it will be adequate to start the search three to four months before the end of the deal.
“That should give plenty of time to line up a new deal.”
Nick said the most important thing borrowers can do is make sure they avoid finding themselves on their lender’s standard variable rate (SVR) mortgage.
An SVR is a default rate offered by banks and they are usually higher than other types of mortgage.
Nick said: “A great first step is to speak to a mortgage broker.
“A broker can help you 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.”
What will happen to house prices in 2025?
It’s difficult to predict what will happen to house prices in 2025 as there are so many factors involved.
Building Society Nationwide has said it expects to see a greater demand in the first three months of next year as buyers look to secure a home before the stamp duty hike.
Alice Haine, personal finance analyst at Bestinvest, said: “The decision not to extend the current relief on stamp duty is likely to lead to an uptick in house prices over the next four months as buyers race to secure a deal before the deadline to avoid a bigger tax bill.
“Prices may be more muted from April, though the prospect of further interest rate cuts may support the market if affordability levels continue to improve.”
Meanwhile, Zoopla has said it expects property values to increase by 2.5% on average during 2025, based on certain assumptions around mortgage rates.
House prices in the Midlands, northern England, Scotland and Wales are likely to outperform the UK average next year, the property website said.
Meanwhile, home prices in southern England, where property affordability pressures are more acute, will lag behind, according to the forecast.
Rightmove expects asking prices to increase by 4% across 2025, but it cautioned that the market remains price-sensitive, and seller competition is at its highest level for a decade.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20% of the home’s value – or 40% in London – after you’ve put down a 5% deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25% on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25% to 75% of the property but you’re restricted to specific ones.
Mortgage guarantee scheme – The scheme opens to new 95% mortgages from April 19 2021. Applicants can buy their first home with a 5% deposit, it’s eligible for homes up to £600,000.