Mortgages rates gone back below 4 per cent this rate – but how far could they fall this year?
Mortgage rates are set to fall further throughout 2025, experts are predicting, following several lenders cutting rates to below 4 per cent.
Brokers have told The i Paper that rates for some customers could reach as low as 3.5 per cent by December 2025.
The forecasts come after Barclays launched a five-year fix for 3.99 per cent, alongside Santander, which is also offering a two-year fix at the same rate.
Experts have suggested this could launch a price war with more lenders expected to cut rates.
But how the future path of rates will play out depends on what happens to the economy, interest rates and inflation.
Experts reveal where rates could head and whether homeowners should look at fixing now.
How low could rates go?
The cheapest mortgage rates on the market are currently at 3.99 per cent for customers with large amounts of equity in their property, or a big deposit for their purchase – referred to as customers with loan-to-value (LTV).
Several lenders dropped their rate following the Bank of England’s decision to reduce interest rates to 4.5 per cent last week.
It follows a period of higher than expected mortgage deals after swap rates – which underpin the pricing of fixed-rate mortgages – edged upwards following increases in the cost of government borrowing.
Experts say that if interest rates fall multiple more times this year, as financial markets are expecting, rates for these customers could hit 3.5 per cent this year.
Nicholas Mendes of John Charcol brokers said that from spring, shorter fixed mortgages may end up being priced cheaper than longer-term fixes.
He said: “By year-end, the most competitive 60 per cent LTV two-year fixed rates are expected to be around 3.5 per cent, with five-year fixes slightly higher at approximately 3.6 per cent.
“For 75 per cent LTV products, rates are likely to be around 3.65 per cent for a two-year fix and 3.75 per cent for a five-year fix.”
He said rates dropping to below 3 per cent was “unlikely”, as it would require the Bank of England to take interest rates to around 2.5 per cent – two percentage points lower than they are currently.
Experts have warned that the path of rates depends on economic factors.
Aaron Strutt of Trinity Financial says: “If everything goes smoothly, then hopefully, rates will edge down, but there are clearly some significant global challenges with wars and trade tariffs, and we don’t know how they are going to hit us financially.”
The best buy rates below take both fees and rates into account.
Should you get a fix now?
If your mortgage fix is coming to an end soon, it is worth starting to look at new deals around three months in advance.
Most lenders let you lock in a new deal several months before you need it to start, so you could currently lock in a rate now even if your deal ends in May.
Then, if rates rise, you have a cheaper deal locked in, and if rates do end up going down, you can switch to a cheaper deal.
Strutt says: “It is well worth checking the market and keeping an eye on the rates your lender is offering you to stay, but also the rates being provided by the other lenders.
“The new Santander sub-4 per cent fixes highlight the importance of monitoring the market because most of the banks and building societies will not be offering their customers sub-4 per cent rates to stay.”
Another option is to go for a tracker mortgage, which will go down if the Bank of England base rate does, and up if the Bank raises rates.
These are usually more expensive than fixes, but they do allow customers to bide their time before locking in a fix, which may get cheaper in the future.
Strutt adds: “Variable rates always come with risk, and they are normally taken by borrowers who can afford for rates to go up. These days many of the tracker rates come with get-out clauses, so if the base rate goes up, borrowers can switch to a fixed deal pretty quickly.
“If you take a tracker, it is worth taking one which has no early repayment charges.”
Lewis Shaw of Shaw Financial Services added: “There may be good reasons to choose a tracker, such as the expectation of a large sum of money coming in the very near future that’s earmarked to pay down a significant portion of a mortgage without excessive penalties.
“Still, other than that, I’d be at a loss as to why tracking would be beneficial. Don’t forget that trackers track above the Bank of England base rate and are higher than their equivalent fixed rates, so you’re taking more risk at a higher cost. As always, the best course of action is to seek advice and explore your options before making any decisions.”