"If we see rates drop by even 1% though, this could help reignite competition in the mortgage market and allow more people to switch away from their current lender."
An estimated 1.8 million fixed rate mortgages are set to mature in 2025, according to UK Finance, which should hopefully pave the way for an increase in remortgage activity next year.
Product transfers have dominated the refinance market in recent years. In Q2 2024, they made up a sizable 82% of all refinancing business - which was actually slightly down from Q2 2023, when they accounted for 84% of transactions. The market saw product transfers peak in April 2023, when they reached a record high of 88%, with nearly nine in 10 borrowers staying with their existing lender at the end of their deal.
To add some context, product transfers made up around 77% of refinance business throughout 2022 and even less in the years preceding the pandemic - accounting for just over 70%.
Product transfers have always been a staple of the mortgage market, but we’ve seen their popularity surge during and post-pandemic. In a restricted market, where most business was carried out online, they were seen as the easiest option during lockdowns.
Since then, a rising Bank Base Rate (BBR) and the increasing cost of living have driven even more borrowers to product transfers. Given product transfers aren’t subject to affordability tests and lenders have been keen to retain borrowers - and business - during challenging periods, it’s easy to see why they have maintained their growth. That said, it would be good to see a market more tilted towards a competitive remortgage environment.
Perhaps my opinion is influenced by the fact a product transfer doesn’t require a valuation. Still, I’m sure there are plenty of mortgage advisers also hoping for a return to a more competitive remortgage market next year.
For borrowers struggling with affordability, a drop in the BBR and mortgage rates could offer some much-needed relief. A buoyant remortgage market typically goes hand in hand with a more competitive mortgage market, and we certainly seem to have the ingredients for this in 2025. Inflation and mortgage rates are down - though both have risen recently - but they are still lower than a year ago, and with the first-time buyer stamp duty ‘holiday’ set to end in April, it is hoped this will lead to a stronger remortgage market.
What does 2025 have in-store?
So what can we expect from mortgage rates in the coming year? We saw the Monetary Policy Committee (MPC) vote 8 to 1 to lower rates from 5% to 4.75% at its November meeting, and it’s widely expected rates will fall further in 2025. However, some analysts have reined in their predictions following the Budget.
Even so, there are some optimistic predictions for 2025, which could help bring us back to a more competitive remortgage market.
Goldman Sachs is predicting BBR will fall to 3% by the end of 2025. It had previously forecast a fall to 2.75% but revised up its forecast following the Budget. While HSBC predicted back in September that BBR would fall to 2.75% in 2025 and as of yet has not changed its forecast.
Meanwhile, economists at Capital Economics are expecting it to drop to 3.5% by early 2026. They had previously anticipated a drop to 3% by the end of next year but now also expect a slower decrease following the measures announced in the Budget and their possible impact on inflation. At the more cautious end of the spectrum, Santander is expecting rates to fall to 3.75% by the end of next year.
There is still an element of uncertainty in the market, not only due to the UK Budget but also the US election and, to some extent, events in Russia and Ukraine, which could also have an economic impact.
If we see rates drop by even 1% though, this could help reignite competition in the mortgage market and allow more people to switch away from their current lender.
Even those borrowers who moved to a new rate two years ago could now be looking at the possibility of a lower rate. There will also come a point where, hopefully, lenders will also actively look to attract new business and grow their books.
House prices
We are also at that time of year when we see house price predictions, which also act as early indicators of how the market expects the year ahead to unfold.
On the whole, predictions for 2025 are positive. Savills forecasts house price increases of 4% in 2025 and 23.4% over the next five years, supported by rate cuts and improved affordability. Meanwhile, Hamptons predicts house price growth of around 3% in 2025 and 12.5% between 2024 to 2027.
In terms of housing transactions, Hamptons forecasts 1.2 million in 2025, slightly higher than Savills’ 1.04 million forecast. Savills notes that while first-time buyer activity is expected to be high, the buy-to-let market will remain subdued.
Buy-to-let aside however, there are still plenty of indicators suggesting we should see falling rates and improved affordability in 2025, which should translate into a more competitive remortgage market.
