Banks are said to want a “positive start” to next year by offering the lowest deals possible
Mortgage rates are expected to fall below 4 per cent early next year in a boost to Sir Keir Starmer’s bid to put more money in people’s pockets.
Experts expect five-year fixed rates will fall below 4 per cent in early 2025 with two year rates likely to follow later in the year.
Banks are said to want a “positive start” to next year by offering the lowest deals possible.
It comes as the base rate is likely to be held at 4.75 per cent by the Bank’s Monetary Policy Committee (MPC) on Thursday, following a 0.25 percentage point cut in November.
Despite the rates hold, the Prime Minister will welcome predictions that mortgages are set to fall in early 2025 after he made boosting living standards the central “milestone” by which voters can judge his Government at the next election.
A fall in mortgage rates will boost real household disposable income, one of the key measures Starmer pledged to increase in his ‘Plan for Change’, as people will have more money left over at the end of the month if they are spending less on repayments.
However, it came as the boss of one of Britain’s biggest recruitment firms said the latest job vacancy data suggested “a recession is around the corner” and “unemployment will rise”, blaming employers’ national insurance hikes in Chancellor Rachel Reeves’ October Budget.
James Reed, CEO of the Reed Group, told The BBC’s Sunday with Laura Kuessberg that job vacancies fell 13 per cent on his company’s data for November, “a very significant decline” which he blamed on a Budget that “spooked business”.
Experts meanwhile said there was at least good news ahead for mortgage holders next year.
Nick Mendes, of brokers John Charcol, said: “Mortgage rates are expected to decline in 2025, but the extent and pace of this reduction will depend on several factors.
“It is likely that 5-year fixed mortgage rates for those with equity or deposits of 60 per cent will fall below 4 per cent in the near future, potentially as early as the start of the year with 75 per cent following after.
“Two-year fixed rates are also expected to decline, but they may not fall below 4 per cent as quickly or as significantly as 5-year fixed rates.
“Current projections indicate that the MPC will cut rates by 25 basis points each quarter until mid-2025. However, forecasts suggest rates may only drop to around 3.5 per cent by early 2026.”
Elliott Culley, director of Switch Mortgage Finance, added: “Provided inflation doesn’t have any abnormal figures we should see a return to rates under 4 per cent around February-time.”
The last time that the average 2- and 5-year mortgage rates were both under 4 per cent was June 2022, according to Bank of England data, in a year that saw the central bank increase the base rate from 0.25 per cent to 3.5 per cent by December 2022.
Some mortgage lenders have introduced sub-4 per cent deals this year, but average rates offered to all borrowers including those remortgaging have remained above that threshold.
An estimated 1.8 million fixed-rate mortgages are set to mature in 2025, according to UK Finance.
Generally, banks up their mortgage rates based on swap rates, which follow long-term predictions for where the Bank of England base rate will go in the future.
Markets have recently revised their forecasts – expecting interest rates to come down more slowly than initially predicted – despite a cut expected at the first MPC meeting in February 2025.
Aaron Strutt, broker at Trinity Financial, said: “Rates are edging closer to 4 per cent, the big lenders are bunched just above this at the moment, it seems likely we’ll have a rate under 4 per cent early next year.
“From speaking to banks it seems they want a more positive start to 2025, which means offering as low a rate as possible.
“We’ve seen before mortgage rates can come down even if the base rate stays the same. I wonder if over Christmas, money markets might get a bit cheaper which mean we might get cheaper fixes.”
At the moment, the cheapest five-year deal on the market, sits at 4.1 per cent, from NatWest.
Rates below 4 per cent were available earlier this year but began to rise in qutumn.
Toby Leek, NAEA Propertymark President, said: “As 2025 progresses we hope to see lenders bring even more competitive mortgage products to the market.”
With a rate hold expected on Thursday, most will not see a change to their mortgages immediately – whether it is variable or fixed.
Variable rates follow the base rate so will not alter if interest rates are held.
Meanwhile, 81 per cent of people are on fixed-rate mortgages, where the interest rate is locked for a set period of time. So, if you are on this type of loan, your repayments will not change based on the decision.