As we step into 2025, many homeowners and prospective buyers are watching the financial headlines closely. The Bank of England’s Governor, Andrew Bailey, recently hinted at the possibility of up to four quarter-point interest rate cuts this year. But what does this mean for your mortgage, your monthly payments, and your future plans?

Let’s break it down.

Are Interest Rates Set to Drop in 2025?

During an interview with The Financial Times in December, Governor Bailey suggested that the UK could be looking at a total reduction of 1% in the base interest rate over the course of 2025. That would see the base rate fall from 4.75% (as of 18 December 2024) to 3.75%.

However, this is not guaranteed. The Bank’s decisions are heavily influenced by economic indicators, especially inflation. Should inflation remain sticky or unexpected economic events occur, the rate cuts could be fewer - or delayed altogether.

Why It Matters for Homeowners and Buyers

The Bank of England’s base rate serves as a benchmark for borrowing costs across the country. When the base rate falls, mortgage rates tend to follow, which can reduce monthly payments and open up new opportunities for savings.

But the impact isn’t felt equally across all types of mortgage deals. Some borrowers could benefit more than others depending on the structure of their mortgage.

How Different Mortgage Types Might Be Affected

Here’s what falling rates might mean for you, depending on your mortgage:

New Mortgages or Remortgaging

If you're looking to buy a property or remortgage in 2025, a lower base rate could reduce the cost of borrowing, making your options more attractive. But be aware - not all lenders will pass on the full rate cuts, and timing your decision will be key.

Tracker Mortgages

These are directly linked to the Bank of England’s base rate, meaning your payments will fall in line with any cuts. For those on tracker deals, lower monthly costs could come almost immediately following an announcement.

Discounted Variable Rate Mortgages

These offer a rate slightly lower than the lender’s Standard Variable Rate (SVR). While a base rate cut could result in lower payments, it’s at the lender’s discretion, so there’s no guarantee of savings.

Standard Variable Rates (SVR)

Borrowers on SVRs may see reductions in their payments, but again, lenders decide how much (if any) of the cut they pass on. SVRs are typically among the most expensive options, so reviewing your deal is strongly advised.

Could Falling Rates Help You Save?

Absolutely, lower monthly payments could be a real benefit for many homeowners. It could also be a great time for new buyers or remortgagers to lock in favourable rates. However, keep in mind that not all savings are automatic. Lenders vary in how much of the rate reduction they pass on, and some mortgage types stand to gain more than others.

Plus, while falling rates might seem attractive, they can also reflect broader economic concerns, like low growth or persistent challenges. It’s important to approach these opportunities with both optimism and awareness.

How to Prepare for Mortgage Decisions in 2025

If you’re currently on a high-interest Standard Variable Rate, now is the time to review your options. Even before rates begin to fall, locking into a good fixed-rate deal might offer peace of mind and protect you from future volatility.

Here are a few steps to take:

• Compare mortgage products across multiple lenders

• Review your credit score and gather necessary paperwork

• Don’t assume your current lender offers the best deal

• Speak to a mortgage adviser for personalised support

No one can predict the future with absolute certainty, but being proactive puts you in the strongest position. Whether you're aiming to reduce monthly costs or take your first step onto the property ladder, understanding how interest rates affect your mortgage is key.

At Mayfords, our experienced team is here to provide honest, tailored advice that supports your unique situation. From comparing deals to guiding you through remortgaging, we’ll walk with you every step of the way.