Interest Rates Fall as Mortgage Affordability Improves Heading into the New Year

Sun 21 Dec 2025

The Bank of England has delivered welcome news for homeowners and buyers alike, cutting the Bank Rate to 3.75% at its final meeting of the year. This marks a notable improvement from this time last year, when the base rate stood at 4.75%, helping to ease borrowing costs across the market.

Mortgage rates have continued to trend downwards in response. The current average five-year fixed mortgage rate now sits at around 4.1%, compared with 4.4% a year ago, improving affordability for buyers and supporting renewed confidence in the housing market.

Lower interest rates are also being supported by stronger economic fundamentals. UK economic growth is expected to reach 1.9% in 2025, an improvement on last year’s 1.1%, creating a more positive backdrop for both home ownership and investment.

House price growth has softened slightly towards the end of the year following a strong start, meaning prices are finishing marginally lower than earlier in 2024. However, with budget uncertainty now behind us and affordability improving, conditions are aligning for house price growth to strengthen in the New Year.

Overall, falling interest rates, improving mortgage affordability, and stronger economic growth point to a more optimistic outlook for the UK property market as we move into the year ahead.