After the latest much-anticipated base rate drop from 4.5% to 4.25% in May 2025, mortgage rates are expected to remain at around 4-5% for the rest of the year.
Major lenders relax mortgage affordability testing
A recent relaxation in how some lenders assess what people can afford to borrow for a mortgage is set to benefit home-buyers across the country.
While you might focus on the mortgage rate you will pay, lenders also look at whether you could afford a higher rate. So if you're looking at paying a 4.5% rate, your lender might 'stress-test' you at 8-9%.
Lenders have now relaxed these tests to varying levels, but it could mean a 20% boost to your buying power.
Let's see what that looks like in monthly repayments:
A first-time buyer is offered a 4.5% mortgage rate with payments of £1,020 per month
They would previously have had to prove they could afford an 8.5% stress rate - or £1,550 per month
If this stress-test is now 6.5%, they now only need to show they can pay £1,275 per month
It's a similar pattern for the average homeowner, while the actual impact will vary by lender and type of borrower.
So while we're not expecting mortgage rates to fall in 2025, these changes are a huge boost for buyer affordability. They mean home buyers will be able to afford a home that they previously would not have, arguably having just as much impact as any further drops in interest rates this year.
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Average mortgage rates in May 2025
Deal type and length | Average rate across all lenders | Average rate across 'big six' lenders |
2 year fixed-rate (75% LTV) | 4.90% | 4.24% |
5 year fixed-rate (75% LTV) | 5.24% | 4.19% |
2 year variable rate (75% LTV) | 4.79% | 4.7% |
Standard variable rate (SVR) | 7.74% | 6.75% |
All average rates are provided by Mojo Mortgages (28th May 2025). The above are the average mortgage rates for various products across the market. These won't necessarily be available to you and are not the only product types available.
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Mortgage rates unlikely to drop below 4% in 2025
Most forecasters are expecting mortgage rates to remain in the 4-5% range this year, even if inflation and the base rate edge lower.
Our Executive Director of Research, Richard Donnell, says: ‘Expectations of lower interest rates are already priced into fixed rate mortgages today.
‘Lower interest rates would likely result in further modest declines in mortgage rates but how far depends on how low money markets see base rates falling.
‘Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range.’
Why are mortgage rates going down?
Mortgage rates began to go down in the latter half of 2023, as inflation dropped from 6.3% in September to 4.2% in December.
In June 2024, inflation hit its 2% target, but it has risen slightly since then and is currently sitting at 2.6%.
The Bank of England cut the base rate twice last year, first in August and again in November - and then again in February 2025.
At the most recent Bank of England meeting in May 2025, the Bank dropped the base rate to 4.25%. Some forecasters are predicting it will fall further by the end of the year.
The bank rate determines the interest rate the Bank of England pays to commercial banks that hold money with them. It influences the rates those banks charge people to borrow money or pay on their savings.
What factors affect interest rates?
Inflation is the main reason interest rates have been high in the UK over the last 3 years. An unexpected rise in demand - or decrease in supply - can cause inflation to rise.
At the end of 2021, the Bank of England began to raise the base rate in order to reduce inflation and help slow down price rises for everyday items including food, petrol, gas and electricity.
Inflation is currently hovering over its 2% target at 2.6%, so the Bank of England needs to keep the base rate high enough to ensure inflation doesn't rise again.
Global shocks can also have an impact on inflation, such as wars, pandemics and tariffs as they affect the flow of goods around the world.
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More choice for buyers in 2025
There are 13% more homes for sale than a year ago. More mortgage products with sub-4% rates, together with changes to how mortgage affordability is calculated, are encouraging buyers to make offers, supporting a 6% growth in sales agreed.
More supply means more sellers, most of whom are also buyers. And more choice for buyers means more opportunity for wiggle room when it comes to paying the asking price.
‘Our view is that a greater availability of homes for sale will keep price rises in check,’ says Donnell.
‘This means buyers have more choice and room to negotiate, especially where homes are failing to attract buyer interest in a timely manner.’
Affordable areas remain popular with buyers
While momentum is up among buyers and sellers across the UK, in more challenging mortgage rate times, it’s the affordable areas that are proving to be the biggest draw for buyers.
Housing market activity and house price inflation are currently strongest in areas where homes are more affordable. In broad terms, this covers most areas outside the southern regions of England.
Our latest House Price Index shows northern regions of England, Scotland and the East Midlands are registering the fastest growth in agreed sales compared to a year ago.
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