Mortgage News

Bank of England Holds Interest Rates Steady

On March 20, 2025, the Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to keep the base interest rate at 4.5%. This decision widely anticipated due to lingering inflation concerns and global trade uncertainties (e.g., U.S. tariffs), disappointed some homeowners hoping for lower borrowing costs. Governor Andrew Bailey indicated rates might decline gradually, but no immediate relief is expected for mortgage holders.

Mortgage Rate Adjustments by Lenders

Following the Bank of England’s decision, Nationwide Building Society announced cuts to its mortgage rates, introducing sub-5% rates for first-time buyers and movers with just a 5% deposit. This includes two- and five-year fixed-rate products with a £1,499 fee, aimed at supporting affordability for those with smaller deposits amid high borrowing costs.

Market Expectations and Mortgage Trends

Despite the rate hold, mortgage rates have been edging down slightly, with two-year fixed deals averaging 5.19% and five-year deals at 5.34% (per Uswitch data). Analysts predict two or three more rate cuts in 2025, potentially lowering rates to 3.5%-4% by year-end, though uncertainty persists due to economic weakness and inflation pressures.

Warnings of Affordability Challenges

With 1.8 million fixed-rate mortgages maturing in 2025, experts warn of a “nasty shock” for borrowers unprepared for higher rates when remortgaging. The decision to hold rates at 4.5% means no immediate change for the 1.2 million on tracker mortgages or those on standard variable rates (SVRs), keeping payments elevated for many.

Housing

UK Housing Market Growth in 2024

The UK housing market saw a significant upturn in 2024, with its total value rising by 6.3% to £379 billion, driven by a £22.3 billion increase in spending on house purchases. This growth, reported by Savills, reflects a stabilization in mortgage markets, with 1.1 million transactions at an average price of £343,922, though it remains below the pandemic peak of £521 billion.

Record Low Planning Permissions

On March 20, 2025, the BBC reported that planning permissions for new homes in England dropped to a record low, signalling potential future supply shortages. This development contrasts with the market’s recent growth and raises concerns about meeting housing demand amid ongoing affordability challenges.

Regional Spending Variations

Northern Ireland led regional growth with a 13.4% increase in housing spending, totalling £5.1 billion, though it accounts for just 1.4% of the UK market. Meanwhile, London faces the steepest decline in house prices in the near term, as per RICS, due to economic uncertainty and higher taxes, highlighting a growing regional divide.

Policy Shifts and Local Initiatives

Cornwall Council announced plans to prioritise housing need over local connection in its allocation rules, aiming to address acute shortages. Similarly, West Devon Borough Council launched a housing action plan, including a council tax premium on second homes, to boost local housing stock and tackle the broader crisis.

Economy

Economic Growth Forecasts Slashed

The OECD downgraded UK growth projections on March 18, cutting 2025’s forecast from 1.7% to 1.4% and 2026’s to 1.2%, reflecting concerns over trade wars and domestic weakness. The Bank of England had already halved its 2025 forecast to 0.75% in February, following a 0.1% GDP contraction in January, pointing to a sluggish economic outlook.

Spring Statement Looms Amid Recession Risks

With Chancellor Rachel Reeves’ Spring Statement set for March 26, analysts warn of recession risks as high interest rates, rising taxes, and global trade pressures dampen growth. The Resolution Foundation predicts a £15 billion increase in borrowing by 2030, wiping out fiscal headroom, while calls grow for measures like stamp duty cuts to stimulate the economy.

Labour Market Pressures Persist

Unemployment remained steady in January, but pay growth stayed high at 5.8% (3.1% after inflation), reducing the likelihood of near-term rate cuts. Economic inactivity dropped slightly to 21.5%, yet the fragile jobs market and a manufacturing decline in Q1 2025 underscore broader economic challenges.

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