As we step into 2025, homeowners and prospective home buyers are keenly watching the Bank of England's Monetary Policy Committee (MPC) for any signs of future base rate cuts. The past year has been a rollercoaster for mortgage interest rates, with the MPC only making two cuts to the standard base rate in 2024, reducing it from a 16-year high of 5.25% to the current 4.75%. The journey to the lower rate was a long wait through the year for the first cut, and while a second came toward the end, the hopeful third cut was not to be.

As the forecasts for the first cut went from early in the year to summer, lenders varied their offerings, first with lower than expected cuts below the base rate, to then pulling their lowest deals and replacing them with higher offers. Lower ones followed again as inflation reached target and then dipped below target, with some nearing the rate of what is forecasted for the Bank’s rate at the end of 2025.

This has been a quick learned lesson for borrowers. Forecasts do not always come about, sometimes expectations for the economy can be sidetracked due to other factors, and perhaps the best rates and savings are to be found now rather than putting hopes into future rate changes.

The MPC's cautious approach to rate cuts in 2024 was largely driven by stubborn inflation, which remained above the target rate of 2.0% for much of the year. Despite a brief dip to 1.7%, inflation surged again to 2.3% and then 2.6% in the last two reports of the year. This indicates that inflation is not yet fully under control and will likely continue to pose challenges for the MPC in 2025.

Looking ahead, there is a possibility that the MPC may reduce the base rate 3 to 4 times in 2025, potentially bringing it down to as low as 3.75% by the end of the year. However, given the experience of 2024, where early rate cuts were postponed multiple times, there is a sense of cautious optimism among experts.

For homeowners, this uncertainty presents a dilemma. Many are considering whether to remortgage at the end of their mortgage term or to allow their loan to be moved to their lender's standard variable rate (SVR) with the expectation of lower rates in the future. However, waiting while paying on a higher SVR could erase any potential savings if the rate cuts take longer than expected to materialize.

Experts are encouraging borrowers to make informed decisions based on their individual financial situations. While some may benefit from waiting for lower rates, others may find it more advantageous to secure a fixed-rate mortgage now, especially if they can lock in a favorable rate. Recently, data has revealed homeowners are opting for longer terms making the five-year fixed deal more popular than the two-year remortgage. This could signal that with the ups and downs of the last few years of inflation and interest rates borrowers are looking for relief from financial worry and searching for peace of mind in longer term deals.

The housing market is also closely watching these developments. Mortgage rates have a significant impact on affordability and demand, and any changes in the base rate will likely influence the market dynamics. As we move into 2025, the key will be balancing the need for economic stability with the desire to make homeownership more accessible.

While there is hope for lower mortgage interest rates in 2025, the path to achieving this is fraught with uncertainties. Homeowners and buyers must navigate this landscape carefully, making decisions that align with their financial goals and risk tolerance. As always, staying informed and consulting with financial experts can help in making the best choices for the future.