Interest rate fall anticipated
At its latest meeting on 19 March, the Bank of England (BoE)The Bank of England (BoE) is the UK’s central bank voted by a majority of 8-1 to maintain the base rate at 4.5%. This decision marks a pause after the 0.25% reduction in February, which brought the base rate to its lowest point since early 2022.¹ Meanwhile, it was encouraging to see headline inflation fall to 2.6% in March, down from 2.8% in February – falling below both market expectations and the BoE’s own forecast of 2.7%. Motor fuels, recreation and culture were the most significant drivers.
Looking ahead to tomorrow’s base rate announcement on 8 May, the financial markets are strongly predicting a rate cut. Recent positive inflation data, falling to 2.6% in March, has bolstered these expectations, as reported by sources such as Sky News. If these predictions prove accurate, it would mark a significant shift in the market and could have notable implications for mortgage rates and the broader housing market. The BoE has emphasised a cautious approach, stating that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate”, but the recent economic indicators suggest a potential move to support growth among global uncertainties.
Impact of Trump tariffs
The imposition of Trump’s tariffs led to major upheaval for markets in April. The most immediate impact was a wave of uncertainty across the global economic landscape, disrupting established trade flows and sparking investor unease, reverberating through UK financial markets. This nervousness triggered a “flight to safety,” boosting demand for government bondsThe financial world’s version of an ‘I owe you’, bonds can be issued by companies or governments. You’d invest in bonds to receive an annual interest payment, plus the initial value of the bond back when it ‘expires’. and fueling expectations that the BoE may need to cut interest rates to bolster the economy.
Consequently, swap rates, which reflect these interest rate predictions, have shown a downward trend. This potentially eases funding costs for UK mortgage lenders who may be able to offer more competitive fixed-rate deals. For example, we’re starting to see the return of sub-4% deals for borrowers with a 60% loan-to-value (LTV), indicating a possible shift towards more favourable borrowing conditions for those with larger deposits. While the tariffs directly impact UK-US trade, their broader effect lies in the pervasive uncertainty, meaning the BoE will have to carefully balance the risk of economic slowdown against potential inflationary pressures, which could be exacerbated by rising import costs.
In the short-term, market reactions have manifested in falling swap rates and some mortgage rate reductions. However, the long-term outlook remains clouded, as significant inflationary pressures could compel the BoE to maintain or even raise interest rates, pushing swap rates upwards. The ultimate impact hinges on a complex interplay of factors, including global trade dynamics, inflationary trends, BoE policy decisions, and exchange rate fluctuations.
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House prices stay flat
The latest UK House Price Index shows that the average house price was £268,000 in February 2025 (data released in April 2025), showing no change month-on-month.While there have been minimal fluctuations since the start of the year, prices are up 5.4%2 annually and the housing market continues to grow – albeit at a much slower pace.
To understand the data, it’s important to note that the House Price Index has a two-month lag, due to the time needed to collect information on all completed property sales. However, its reliance on finalised transactions makes it the most dependable measure.
Rightmove’s figures are more timely but only represent asking prices on its site, not data on sold properties. This April, the property site saw asking prices rise by 1.4% month-on-month, slightly higher than the typical April increase of around 1.2%.³ As the Spring selling season begins, the housing market continues to show signs of resilience, with sellers buoyed further by falling mortgage rates. Looking ahead, the market will be closely watched to see if the uptick in asking prices translates into sustained growth in completed sales – especially given the recent Stamp Duty threshold increase affecting buyers.
Putting your home on the market soon? We help next-time buyers too. Speak to the Moneybox mortgage broker team about your mortgage options – we can help you navigate the current market with ease.
Mortgage approvals fall
Mortgage approvals have been falling steadily for the last three months, ever since a modest increase to 66,505 approvals in December 2024. The latest figures show 64,310 approvals in March, down 1.2% compared to February.⁴
This steady fall signals a slight cooling of buyer demand, which could be driven by the Stamp Duty threshold change, or buyers waiting out the impact of economic uncertainties. If this downward trend persists, it may indicate a more cautious approach from prospective home-buyers in the face of ongoing economic headwinds, potentially leading to a more subdued housing market in the coming months.
1 Source: Office of National Statistics (ONS) CPI Annual Rate of Inflation
2 Source: GOV.UK Land Registry (UK House Price Index for Feb 2025)
3 Source: Rightmove House Price Index for April 2025
4 Source: Trading Economics, UK Mortgage Approvals for March 2025