Interest rates have been decreasing in the second half of 2024 which is great news for buyers. In this article, we’ll explore what the next five years hold for mortgage rates, examining how they might behave and what this means buyers, investors, and sellers.
2025 housing market predictions
The UK has seen a steady growth in house prices in 2024, with an average increase of 1.7%. This is predicted to fall slightly to 1.1% in 2025, according to the OBR (Office for Budget Responsibility).
In terms of mortgage rates, most experts argue that 2025 looks set to see more reductions. However, The Budget means that rates may not fall as dramatically as experts hoped at the start of October.
Mortgage rate predictions for 2026 – 2030
From 2026 to 2030, the OBR predicts a growth of around 2.5% in the UK housing market. In real terms, this would mean the average house price in the UK would be £310,000 in 2028, which is higher than their March 2024 forecasts.
Labour has pledged to build 1.5m homes in its first five years in power, too, which should mean that property purchases increase. The OBR predicts 350,000 property purchases every quarter for the next five years.
Base rate predictions and what they mean for mortgages
The Bank of England (BoE) looks set to drop the base rate to 3.5% by 2030, with rates predicted to drop by around half a percentage point in 2025 and 2026. However, the OBR is less optimistic, predicting a 4.5% base rate by 2027.
If the base rate does fall to or below 3.5%, borrowers should be able to borrow more which would make more mortgages available to buyers. Affordability testing may also be relaxed.
As we’ve touched on above, housing prices will rise over the next five years, but the borrowing power of many buyers should also increase. This creates a nice balance for buyers and sellers which should be positive for the overall housing market in the UK.
A potential buy-to-let boom
With house prices set to consistently rise, some experts predict a buy-to-let resurgence as houses become a more attractive investment. Rent prices are also on the increase, up by 40% since 2020, which is appealing to potential renters and property investors.
However, the market has been volatile, to say the least, over the past five years and while the near future looks more stable, things can change quickly in the UK.
Conclusion
As the dust settles on 2024 and we look forward to the year ahead, the housing market looks in a strong position in the UK.
With interest rates set to further decrease, house prices to rise, and borrowing power to increase, buyers and sellers can be cautiously optimistic about the future. However, nothing is guaranteed which is why it’s always advised to seek expert advice regarding any mortgage decision.
We offer advice to buyers and sellers regarding mortgages, remortgages, buy-to-lets, and more, so get in touch with our experts at enquiries@cedarhfs.co.uk or on 020 8366 4400 to find out more.