After a period of turbulence marked by high inflation and rising interest rates, the UK property market is showing early signs of renewed activity. The recent decline in mortgage rates is one of the most significant developments shaping 2025, with far-reaching implications for both domestic homeowners and international investors.

1. Mortgage Rate Trends in the UK

According to the Bank of England, the average two-year fixed mortgage rate peaked above 6.5% in mid-2023. By early 2025, lenders have been gradually cutting rates, with many products now closer to 4.5–5%. This shift reflects falling inflation and expectations that the Bank of England will eventually reduce its base rate.

For households, these changes are material. On a £250,000 mortgage, a drop from 6% to 4.5% reduces monthly repayments by around £230. Such savings improve affordability and bring thousands of potential buyers back into the market.

2. Impact on the Domestic Housing Market

Lower mortgage rates directly boost buyer confidence. Property portal Rightmove has already reported an increase in buyer enquiries compared with the same period last year. Estate agents are also noting a shorter average time on the market for well-priced properties.

While this does not necessarily mean a return to rapid house price growth, stabilisation is a likely outcome. The Office for National Statistics recorded a 1.2% annual fall in UK house prices in 2024, but most analysts expect a modest recovery in 2025 as financing becomes more accessible.

3. Opportunities for Sellers

Sellers benefit from improved liquidity. As more buyers regain the ability to borrow, the pool of potential purchasers widens. Competitive bidding is more likely in popular locations such as London, Manchester, and Birmingham. Sellers who struggled during the high-rate environment of 2023–24 may now find greater momentum in the market.

4. Effects on International Buyers

International investors are particularly sensitive to two factors: currency movements and financing costs.

• Currency Advantage: Sterling has remained relatively weak compared with pre-pandemic levels, particularly against the US dollar and the euro. This gives overseas buyers an effective discount on UK property.
• Lower Borrowing Costs: Many international buyers—especially professional landlords and institutional investors—use leverage. With mortgage rates now falling, rental yields in cities like London, Leeds, and Liverpool appear more attractive. According to Zoopla, average UK rents rose by 8.5% in 2024, outpacing inflation. Combined with cheaper financing, this enhances returns for overseas investors.

The premium property market in central London, historically reliant on international capital, is expected to benefit most. Analysts at Savills forecast renewed demand from Middle Eastern, Asian, and North American buyers in 2025 as borrowing conditions ease.

5. Outlook for 2025 and Beyond

The outlook will depend largely on the pace of Bank of England rate adjustments. Should inflation continue its downward trend, further cuts to the base rate are possible, reinforcing the current trajectory.

• For domestic buyers, affordability will improve, although structural challenges such as high house-price-to-income ratios remain.
• For international buyers, the combination of lower financing costs, favourable exchange rates, and robust rental demand makes UK property highly attractive.
• For the wider market, a period of stabilisation and gradual recovery is the most likely scenario, rather than a dramatic boom.

Conclusion

The fall in UK mortgage rates marks a turning point for the property sector. Domestic buyers gain relief from punishing borrowing costs, while international investors find enhanced opportunities due to both currency conditions and cheaper leverage.

Although the UK housing market still faces structural affordability issues, the shift in mortgage dynamics is expected to restore momentum in 2025. If current trends persist, the market may experience a balanced recovery—benefiting sellers, landlords, and overseas investors alike.