The UK housing market is entering a phase of renewed optimism as mortgage rates begin to decline in 2025. Following a turbulent period of high interest rates throughout 2023 and 2024, recent reductions by the Bank of England (BoE) are starting to have a tangible effect on market activity.

Why Are Mortgage Rates Falling?

The BoE reduced its base rate from 5.25% to 4.75% in 2024, and industry analysts predict further cuts in 2025, potentially reaching as low as 3-4% by year-end​. This easing of borrowing costs is primarily driven by:

• Cooling inflation: The UK’s inflation rate has stabilised, reducing pressure on the central bank to maintain high rates.
• Economic policy shifts: Tax increases announced in the Autumn Budget 2024 have impacted market confidence, leading to adjustments in lending rates​.
• Market competition: Lenders are responding to improved economic conditions by offering more competitive fixed-rate mortgage deals.

How Will Falling Mortgage Rates Affect Property Market Activity?

1. Increased Buyer Demand

Lower mortgage rates make home ownership more affordable, encouraging first-time buyers and home movers to enter the market. Property website Rightmove expects house prices to rise by 4% in 2025, while Zoopla predicts a more moderate 2.5% increase​.

As mortgage repayments become more manageable, demand is likely to outstrip supply, particularly in affordable housing segments.

2. More Remortgaging Activity

With rates stabilising, many homeowners who took out expensive fixed-term mortgages in 2023–2024 are now looking to remortgage at lower rates. This is expected to drive higher mortgage application volumes throughout 2025, leading to increased activity in the mortgage advisory sector​.

3. Stabilisation of House Prices

High interest rates in 2023–2024 led to a cooling property market, with sellers forced to reduce asking prices to attract buyers. However, as borrowing becomes cheaper, house prices are expected to stabilise or even rise modestly, particularly in key urban centres​.

4. Positive Impact on Landlords and Rental Market

For buy-to-let investors, lower mortgage rates could improve profitability. With rental demand still high due to affordability constraints for first-time buyers, landlords may expand their portfolios, bringing more rental stock to market​.

Potential Risks and Uncertainties

While the outlook is largely positive, some risks remain:

• Global economic uncertainty: Factors such as geopolitical tensions and the impact of potential trade policies (including those under a new US administration) could affect market stability​.
• Bank of England’s policy decisions: If inflation picks up unexpectedly, interest rates could remain higher for longer than expected.

Conclusion

2025 is set to be a year of recovery and stabilisation in the UK property market. Falling mortgage rates are expected to boost demand, support price stability, and encourage remortgaging activity. While uncertainties remain, particularly regarding inflation and global economic trends, the general sentiment among industry experts is cautiously optimistic.

If you are looking to buy, sell, or remortgage, now may be an opportune time to reassess your property strategy.

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