Will Mortgage Rates Continue to Decrease in 2025?

After years of rising borrowing costs and nervy headlines, many North London homeowners and would-be buyers are finally breathing a sigh of relief. Mortgage rates are edging down at last, and that small shift is making a big difference to household budgets. The question everyone’s asking, though, is whether this is just the beginning of a gentler trend. Or if we’ve already seen the best of it…

Where Rates Stand Now

As of August 2025, the average two-year fixed mortgage rate has dropped below 5% for the first time in three years. That’s a notable improvement on the summer of 2023, when deals hovered closer to 7%. Some lenders are even offering rates as low as 3.7% on select two-year fixes at lower loan-to-value ratios. Five-year fixed deals are also hovering in the mid-4% range, making them appealing to buyers who value security.

These reductions have largely been driven by the Bank of England trimming its base rate to 4%. That cut followed months of cautious optimism that inflation was finally easing, though it still sits a little above the Bank’s target. The Monetary Policy Committee is expected to lower the base rate once more before the end of the year, but policymakers remain wary of moving too quickly.

The Outlook for the Rest of 2025

Forecasts for the remainder of the year suggest that while mortgage rates are likely to keep edging downward, the pace of change will be slow and steady rather than dramatic. Analysts expect the average two-year fix to settle somewhere around 4% by December, with more optimistic projections putting it closer to 3.5%. Five-year deals are predicted to follow a similar trajectory, though the gap between short- and long-term products has narrowed considerably.

The key factor here is inflation. At just over 3.5%, it remains stubbornly above the Bank of England’s 2% target. Until that figure drops decisively, the Bank is unlikely to cut base rates aggressively. For buyers hoping for a return to the ultra-low mortgage deals of the late 2010s, it’s important to temper expectations. The most likely scenario is a gradual easing into 2026, not a sudden plunge.

What This Means for Buyers and Homeowners

For North Londoners looking to re-mortgage, the shift is welcome. Standard variable rates remain painfully high at over 7%, so locking into a fixed deal at around 4.5% is already a meaningful saving. Those due to come off fixed terms this year may find it wise to secure a deal sooner rather than later, as even small fluctuations can make a big difference to monthly repayments.

First-time buyers, meanwhile, will benefit from improved affordability compared with last year. Lower borrowing costs should open up opportunities in a market where asking prices have softened slightly, even as sales volumes remain strong. That said, affordability tests remain stringent, and most lenders will continue to scrutinise applications carefully in the current climate.

For those weighing up whether to choose a two- or five-year fix, the decision depends on personal circumstances. A five-year deal offers stability, particularly useful for households looking to budget with certainty. A shorter two-year fix, on the other hand, may allow borrowers to take advantage of further reductions if rates continue to ease into 2026.

So, will mortgage rates continue to decrease in 2025?

The answer is yes, but gently. The worst of the post-pandemic rate shock appears to be behind us, but the landscape remains shaped by caution. Inflation, global economic pressures, and the Bank of England’s careful approach mean that while homeowners and buyers can look forward to gradual improvements, they shouldn’t expect a rapid return to the ultra-cheap borrowing of the last decade.

For those navigating the North London property market, the advice is clear: stay informed, consider your timing, and weigh the benefits of certainty against the potential for future savings. Above all, make decisions based not only on the wider economy but also on what feels sustainable for your household budget.

At the end of the day, the housing market is as much about people as it is about numbers. Whether you’re remortgaging, buying your first flat, or taking the next step up the ladder, a small change in rates can open doors, literally. And while none of us has a crystal ball, it’s reassuring to know the trend is finally heading in the right direction.

Contact us:

mark@daviesdavies.co.uk – Sales Director (contact for sales, lettings and new homes)

katrina@daviesdavies.co.uk – Director of Property & Block Management (contact for property and block management)

Davies & Davies Estate Agents, 85 Stroud Green Road, London, N4 3EG

Article & images by Barefaced Studios

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