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UK mortgage rate forecast for March 2025
The recent run of mortgage rate cuts may be about to end as the base rate may need to remain higher for longer to combat rising inflation.
The expectation and eventual confirmation of the base rate being cut in February saw the cost of fixed-rate mortgages drop consistently in the first three weeks of the month. However, the subsequent announcement that inflation had risen to 3% in January, rather than the 2.8% that economists had anticipated, has given lenders reason to pause for thought.
“With inflation rising more than expected on the latest print, expectations around further Bank of England base rate cuts have been tempered,” said Stephen Perkins, managing director at independent broker Yellow Brick Mortgages. “Based on swap rate activity, we are coming to the end of recent fixed rate reductions. It’s likely some of the best priced deals currently available will be pulled shortly. So buyers or remortgage clients should act quickly to secure a rate.”
Fixed mortgage rates drop lower
Due to the recent reductions, most borrowers should find mortgage rates are lower than where they began the year.
Major lenders including Barclays, HSBC, Nationwide, NatWest and Santander lowered at least some of their fixed mortgage rates in February. Many other smaller lenders and building societies did the same.
As at 22 February, the average two-year fixed mortgage rate stood at 4.87% as a result. This is down from 5.01% at the start of the month, and 5.06% as 2025 began. The average five-year rate of 4.69% compares with 4.81% at the beginning of February, and 4.80% at the start of the year.
The falls seen in February are particularly welcome given the uncertainty which ran through last month’s forecast. They also mean that most borrowers are likely to be looking at cheaper rates compared with early 2025. The very best fixed rates available also dropped below 4% for the first time since last November.
Uncertainty over future direction of rates
Whether those sub-4% deals remain around for long is unknown. The day after the inflation announcement, Santander announced the withdrawal of its market-leading five-year fixed rate of 3.99%, citing a rise in funding costs.
However, its two-year deal priced at the same rate remained in place. On the same day, lenders including Barclays, Halifax and Nationwide all announced rate cuts, as did HSBC a day later. The big question is whether these will be the last reductions borrowers see for a while.
“This could be lenders pricing ahead of the inflation figures, so these rates may only be available for a short time”, said Justin Moy, managing director of independent broker EHF Mortgages. “We just don’t know at this stage.”
Tracker borrowers set for repayment savings
The good news for borrowers with tracker mortgages and paying a standard variable rate (SVR) is that the February cut in the base rate from 4.75% to 4.5% is likely to see their monthly mortgage repayments fall.
According to financial services trade body UK Finance, around 629,000 tracker mortgage holders will save on average £29 a month due to their rate decreasing in line with the base rate.
A drop is less certain for the 693,000 homeowners who are paying their lender’s SVR, as lenders usually have discretion as to whether they pass any base rate cut, or rise, onto borrowers, and how much. If the full 0.25 percentage point cut is passed on, the typical SVR borrower could see their monthly repayments fall by around £17 a month.
To date, 30 out of 63 lenders tracked by broker L&C Mortgages have agreed to lower their SVR by the full amount or more. Another 20 are dropping their rate, just not by the full amount. The remaining 13 are either yet to make their intentions clear or choosing to keep their SVR unchanged.
March base rate cut unlikely
Inevitably, attention has already turned to whether and when the base rate might fall again. The next base rate announcement is due on 20 March, but, at present, a second successive cut seems unlikely.
The move in February had been widely anticipated given inflation had unexpectedly fallen in December and a broad consensus that the economy needed a boost. The vote itself was unanimous, with all nine rate setters on the Bank of England’s Monetary Policy Committee (MPC) calling for a cut – two even favoured a larger reduction to 4.25%.
However, caution was struck at the same time, with the Bank’s governor, Andrew Bailey, saying the MPC would be “taking a gradual and careful approach to reducing rates further”. The economic data that has followed since is likely to have hardened such sentiment.
A sharp rise in wage growth had already fuelled inflationary concerns, even before January’s inflation figures exceeded expectations. The market reaction was to trim the chance of a March base rate cut to 15%, down from 24% ahead of the inflation data release. However, two more reductions are still expected before the end of the year. The hope is that they will be enough to push mortgage rates even lower, if not immediately, then in the months ahead at least.
“It’s likely that mortgage rates will continue to fall over the coming months, but just at a slower rate or just postponed until much later in the year,” says Moy. “The Bank of England will struggle to justify to itself base rate cuts whilst inflation continues to increase, as the effect of the Autumn budget starts to kick in over the next few months.”
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