"Typically, when one lender cuts some rates, you start seeing this move across other lenders too, as they don’t want to have a lower uptake compared to competitors"
- John Morris - Pure Property Finance
The average two-year mortgage rate has fallen to 4.99%, marking the lowest point in three years and the first time it has dropped below 5% since the Liz Truss mini-budget.
The decline, according to Moneyfacts, has prompted questions over whether rates will continue to fall through the remainder of 2025. John Morris, mortgage advisor at Pure Property Finance, discussed the factors behind the shift and the outlook for the months ahead.
Why rates are falling
"Firstly, it’s good to look at what exactly is driving this drop," said Morris. "Swap rates have eased, which means lenders can now pass reductions onto borrowers. This was previously held off until rates were a bit more stable. Base rate cuts also sparked fresh lender competition. Typically, when one lender cuts some rates, you start seeing this move across other lenders too, as they don’t want to have a lower uptake compared to competitors."
"For some lucky people, this even prompted some deals to fall below 4% this year, especially for those paying a higher deposit."
Outlook for 2025
"It's great to see that property interest rates are slowly coming down, but I don’t think there will be any dramatic drops as we get to the end of the year; it definitely won’t reach the 2% mark that we had pre-COVID," explained Morris.
"There’s some optimism that rates might soften a little bit throughout the year, but it won’t be a dramatic drop. With inflation starting to ease ever so slightly, lenders are still pricing conservatively and are still reluctant to make any huge changes. The Bank of England base rate is a key driver of interest rates. We’ve started to see this come down consistently, with two members of the MPC most recently voting for a 0.5% cut,"
"Mortgages may decrease more in the coming months, but won’t reach pre-pandemic levels for a long time."
Whether to fix or not
"Some borrowers have opted to sit on variable/tracker rates as mortgage costs trend downwards, to switch to a fixed rate once the market plateaus,’ commented Morris.
"Others who need more payment security or higher lending would be more suited to a fixed rate. This offers a guaranteed monthly payment for a set term, regardless of what happens with the BOE base rate."
"Each borrower's scenario is different. It’s still important to seek advice on what deal suits your scenario best."
