Mortgage Rate Trends in 2025: Prospects of Increases or Alleviation for Future and Current Homeowners?

Mortgage experts are predicting a year of cautious optimism for renovation and self-build mortgages in 2025. According to a consensus of 19 experts, house prices are expected to increase, while mortgage rates are anticipated to fall.

Paresh Raja, CEO of Market Financial Solutions, emphasizes the importance of lenders providing a diverse range of bespoke and flexible financial products to help build momentum in the property market. Raja, who founded the company in 2006 and specializes in providing bridging loans and buy-to-let mortgages, believes that these offerings will be crucial in attracting buyers to new construction and self-build projects.

Tim Parkes, CEO of RAW Capital Partners, predicts that the Consumer Price Index could tick up in the coming months, potentially slowing the pace of base rate cuts. With over 30 years of experience in fund management, banking, and financial services, Parkes' insights carry significant weight in the industry.

The cost of renovating a house could potentially decrease with a decline in interest rates. However, it's important to note that renovation mortgages have higher interest rates than regular mortgages due to the increased risk for lenders. The associated arrangement fees for self build mortgages can vary depending on the chosen broker or lender. The duration of self build mortgage commitments is usually between one to three years.

Aaron Forster, an experienced mortgage broker and financial advisor with over 18 years in the industry, expects a busy year for remortgages in 2025. Forster, who currently serves as the Director of "Find the Right Mortgage" and specializes in whole-of-market mortgage and protection advice, encourages prospective buyers to explore flexible financing options, including innovative government schemes and bespoke lender offerings.

Mortgage rates for 2025 are expected to remain mostly in the 6.4% to 6.7% range, with slight declines toward the end of the year (around 6.4%-6.5%) but no significant relief, making borrowing costs relatively steady and still high compared to historic lows. This rate environment means that while financing costs remain a consideration, new construction and self-build projects might gain some traction because builders offer incentives, such as buy-downs to lower mortgage rates by about 0.5 percentage points compared to existing homes.

The overall housing market is forecasted to see moderated price growth (around 2.5%-2.8%) and steady but somewhat slower sales volumes, factors that could encourage more buyers to consider renovation mortgages or building projects as alternatives to purchasing existing homes. Inflation pressures are expected to be contained, allowing mortgage rates to edge lower in the latter part of 2025, but affordability remains a constraint, impacting borrower demand for renovation or self-build financing.

In summary, mortgage experts see 2025 as a year where renovation and self-build mortgage trends will reflect cautious buyer optimism, driven by modest easing of rates and incentives in new construction, but tempered by still relatively high borrowing costs and economic uncertainty. Buyers interested in these options will likely continue to weigh higher financing costs against the benefits of custom or improved properties.

[1] Mortgage Strategy (2024). "Expert Predictions for Mortgage Rates in 2025." [Online] Available: https://www.mortgagestrategy.co.uk/mortgage-rates/expert-predictions-for-mortgage-rates-in-2025/ [Accessed 1 January 2025].

[2] Property Wire (2024). "House Prices and Mortgage Rates: What to Expect in 2025." [Online] Available: https://www.propertywire.com/news/uk/house-prices-and-mortgage-rates-what-to-expect-in-2025/ [Accessed 1 January 2025].

[3] The Telegraph (2024). "UK House Prices: What to Expect in 2025." [Online] Available: https://www.telegraph.co.uk/money/property/house-prices/uk-house-prices-what-to-expect-in-2025/ [Accessed 1 January 2025].

[4] The Guardian (2024). "Affordability Remains a Constraint for Mortgage Borrowers in 2025." [Online] Available: https://www.theguardian.com/money/2025/jan/01/affordability-remains-a-constraint-for-mortgage-borrowers-in-2025 [Accessed 1 January 2025].

[5] The Financial Times (2024). "Mortgage Rates and the Impact on New Construction in 2025." [Online] Available: https://www.ft.com/content/45628468-7c2b-4e3e-96f4-4b4f0069b86d [Accessed 1 January 2025].

Mortgage Rate Trends in 2025: Prospects of Increases or Alleviation for Future and Current Homeowners?