What's next for mortgage rates and how low will rates go? Experts give their verdict

The Sun

09-05-2025

HOMEOWNERS and aspiring buyers may have breathed a sigh of relief after the Bank of England dropped interest rates yesterday.
The base rate influences mortgage prices by reducing the overall cost of borrowing.
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The Bank of England 's Monetary Policy Committee (MPC) voted on Thursday to drop the base rate by 0.25% from 4.5% to 4.25%.
The cut was expected as the global economy responds to US president Donald Trump 's tariffs.
Laith Khalaf, head of investment analysis at savings platform AJ Bell, said: 'Trump's tariffs have fed directly into this interest rate cut by pushing down energy prices, which has lowered the UK's inflation forecast."
When interest rates are low the cost of borrowing tends to fall.
Lenders were largely expecting the base rate cut this week and many acted in advance by trimming mortgage rates.
In recent weeks, providers have been slashing rates below 4% and Halifax was among the big lenders to cut rates further this week.
This helps those looking for fixed rate mortgages to get a better deal.
Those on tracker and standard variable rate (SVR) mortgages typically see their rate and payments fall the following month after a base rate change.
A 0.25% cut to base rates would mean an average SVR mortgage would fall by £170 a year, while those on tracker deals will see a £350 a year drop.
We have rounded up the full list of lenders that have cut variable mortgages in response to the move by the Bank of England.
But borrowers will be wondering whether costs could fall even lower this year. Here is what the experts say...
Best schemes for first-time buyers
How low will interest rates fall?
The Bank is tasked with keeping inflation at around 2% and in part uses interest rates to do so - typically dropping rates when inflation is lower.
The Bank now expects inflation to peak at 3.5% later this year, which is down from its previous forecast of 3.75%.
Financial markets believe that interest rates could drop to 3.5% which would mean several more cuts to come and likely lead to lower mortgage rates.
However, it is not a guarantee and will depend on how the global picture plays out.
Laith Khalaf from AJ Bell said: 'Trump's tariffs have definitely led to falling fixed mortgage rates so far, but whether that continues to be the case depends on the final implementation, and the reaction of interest rate markets.
"Lenders may also be looking at the economic picture, in particular the potential for unemployment to rise, and think this is no time to be heroic by slashing rates.
"Unfortunately for mortgage borrowers, guessing the future direction of the mortgage market right now is like a high stakes game of blind man's buff."
The Bank of England will react to events as they unfold and typically takes a 'gradual' approach to rate cutting rather than making sudden sharp moves.
How long should you fix?
Borrowers take out fixed rate mortgages for peace of mind over repayments in the future.
But it's often tricky to decide whether to fix for a short term, such as two years, and hope rates are lower when the period ends.
Or opt for five in expectation that rates will not be much different in two years or could even be higher.
David Hollingworth, associate director at broker L&C Mortgages said: "Over time and as base rate continues to drop it should help to see fixed rates edge lower.
"Two year fixed deals are now on par or even lower than the five-year products, which has not been the case in recent years.
"That will only intensify the dilemma of how long is the right time to fix for. "
However, the best thing to do is focus on your own individual circumstances.
David adds: "Borrowers should keep their focus on what works for them – rates could be lower in a couple of years so a short term rate would offer the chance to review at that time but there's no guarantee at all and a longer term fix of five years or more would give greater security."
Should you opt for a tracker?
Fixed rates are more popular for homeowners as they give certainty over payments for a set period of time - regardless of any changes to interest rates over this time frame.
But if you think the base rate is going to fall, you could take advantage with a tracker mortgage.
Rates on these deals fall in line with the base rate - but beware as they will also rise if the base rate goes up.
David from L&C says: "The margin between fixed and tracker deals should continue to narrow and trackers are far more likely to be free of any early repayment charges, giving borrowers more flexibility if they're not sure they want to lock in.
"Overall, borrowers should hope to see an improving rate outlook but what we don't know is exactly how quickly those cuts may feed through.
"Just as the news of trade tariffs and the ensuing turbulence quickly affected rate expectations, there could still be other events that will turn things around."
It's not just about what you think will happen with interest rates.
Tracker mortgages also depend on your circumstances - if you are looking for flexibility and don't want to tie into fixed deals which come with high exit fees, they can be a good option.
Nicholas Mendes from broker John Charcol says: "Tracker mortgages can offer a compelling alternative for certain borrowers, particularly those who value flexibility or believe that the base rate is likely to fall further.
"These products are linked directly to the Bank of England base rate, plus a set margin, meaning repayments adjust in line with any official changes."
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you're on one then you're likely to be paying more than you need to.
Variable rate mortgages often don't have exit fees while a fixed rate could do.