Inflation rises but rate cuts forecast
The Bank of England (BoE) voted to keep the base rate at 4.75% at their December meeting, its lowest point in over a year, after they cut rates from 5% in November. The BoE cited a number of factors for this decision, including persistent inflation, which is currently sitting at 2.5% – this is above the 2% target.¹ Increased costs for motor fuel and clothing have contributed to this upward pressure. Inflation has only fallen slightly – from 2.6% in November to 2.5% in December – but even so, the BoE has indicated that further rate cuts are likely this year as they aim to stimulate the economy. Analysts predict there could possibly be one cut to the base rate, which is expected to settle around 3.5%.
The next rate decision on 6th February 2025 will be closely watched, as it could signal whether the Bank prioritises economic growth or keeping inflation at a manageable level. This decision may influence mortgage affordability and buyer demand in the coming months, although it’s worth noting that lenders usually look at longer-term ‘swap rates’ instead of the base rate when pricing their own deals.
Mortgage rate gap shrinks
According to Moneyfacts data, the gap between two- and five-year fixed-rate mortgages has shrunk to its smallest margin in two years.² The average difference now stands at just 0.23% and this represents a significant drop in both rates compared to the start of 2024.
This gap reduction could benefit those seeking longer-term stability, as five-year fixes may offer greater affordability compared to shorter-term options. If you’re a first-time buyer or considering remortgaging, speaking to a mortgage broker could help you explore a wide range of options and secure the best possible deals.
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House prices dip slightly
The latest UK House Price Index shows that the average house price dipped to £290,000 in November 2024 (data released in January 2025), a 0.4% decrease from the previous month.³ This marks the second consecutive monthly decline, following six months of increases. However, it’s important to note that prices remain 3.3% higher than a year ago, indicating continued annual growth, albeit at a slower pace.
Although the House Price Index data lags by two months because it takes time to gather data from all sold properties, it’s considered the most reliable measure as it’s based on completed sales. More recent data from Halifax, which only tracks their own mortgages, shows a similar trend with a 0.20% dip in December 2024.⁴ This suggests that the market may be cooling slightly, but underlying demand remains strong. Looking ahead, the market is likely to be influenced by potential base rate cuts, changes in inflation and Stamp Duty changes, so we could see a possible rise in prices later this year.
Mortgage approvals slowly rise
Despite economic fluctuations, the mortgage market demonstrated resilience in 2024. While mortgage approvals dipped slightly in November, falling from 68,303 to 66,060 after five months of increases, December saw a small 0.70% rise to 66,530 (data released in January 2025).⁵ This suggests a potential resurgence in buyer confidence in 2025, particularly with the BoE expected to cut the base rate further in the coming months. In December 2023, approvals were at 52,070, highlighting a significant increase year-on-year.
If mortgage rates stabilise or potentially decline in the future, improved affordability could lead to a surge in demand from homebuyers. Additionally, the upcoming Stamp Duty changes in April could create a temporary spike in activity as buyers aim to complete purchases before the new rules take effect. If you’re looking to buy before Stamp Duty changes on 1st April, speak to our broker team as soon as possible.
With current property transactions in some cases taking up to 5 months and delays from conveyancing congestion, as well as potential industrial action at the Land Registry, we’re working hard to complete cases before the 1 April deadline. However, it’s important to be prepared for possible delays and higher buying costs to avoid disappointment and surprises.
1 Source: Office of National Statistics (ONS) CPI Annual Rate of Inflation
2 Source: Moneyfacts UK Mortgage Trends Treasury January 2025
3 Source: GOV.UK Land Registry (UK House Price Index for November 2024)
4 Source: Halifax House Price Index, December 2024
5 Source: Trading Economics, UK Mortgage Approvals for December 2024