Mortgage rates might not seem like the most interesting topic, but as a first time buyer, it’s important to understand what they are, what impacts them and how they could affect you.
At Pocket Living, we want to make sure you have all the information you need to make an informed decision about stepping onto the property ladder. So, in this guide, we’ll explore the base rate, the forecast for mortgage interest rates and what you should consider as a first time buyer before committing to a mortgage deal.
What’s the base rate?
The Bank of England (BoE) sets the base rate of interest – officially known as the Bank Rate – which influences the economy and controls inflation. The base rate dictates how much you’re charged to borrow money from banks and lenders. A higher base rate makes borrowing more expensive, while a lower base rate makes borrowing cheaper. Therefore, the base rate impacts the interest rates offered on new fixed-rate mortgages and the standard variable rate when the fixed term ends. It also influences variable-rate mortgages, causing monthly repayments to rise and fall with it.
The BoE started raising the base rate at the end of 2021 to combat rising inflation. Since then, inflation has stabilised, and the BoE began lowering the base rate in August 2024. It’s currently set at 4% and has been since August 2025, with the next announcement due on 6 November 2025.
What’s the forecast for mortgage interest rates in 2025 and 2026?
What’s happening in the world makes it difficult to predict how the economy will evolve, which is why the BoE monitors global developments closely and reviews the base rate every six weeks. Inflation is still higher than the government’s target of 2%, so future cuts to the base rate will be made “gradually and carefully”, says BoE Governor Andrew Bailey.
Because of this, it’s hard to predict what’s in store for mortgage rates for the rest of 2025 and into 2026. According to HomeOwners Alliance, forecasters are split on what’s next. On one hand, the base rate could stay at 4%, keeping mortgage interest rates similar to what’s currently on offer. On the other hand, there’s the chance of another base rate cut of 0.25% before the end of the year, which could reduce the interest rates lenders offer on mortgages. If you’re thinking about buying your first home in the next few months, we recommend speaking to an Independent Mortgage Advisor (IMA) like Censeo, who can help you secure the best mortgage interest rate.
What this means for you as a first time buyer
We’ve all experienced the impact that global developments have had on the economy in the past few years. To say it’s been a challenge for first time buyers trying to save for a deposit would be an understatement. But the good news is that inflation is stabilising, and the base rate has gradually decreased over the past two years, resulting in lower mortgage interest rates than at the height of inflation between August 2023 and July 2024, when the base rate was 5.25%.
The takeaway? Keep an eye on inflation, as it impacts everything from earnings and budgets to the base rate and subsequent mortgage rates. Staying up to date with what’s happening in the economy will help you make an informed decision about when to buy your first home.
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