A slight rise in mortgage rates since the start of the year is likely to mean house prices stall in the near term. But our forecast that Bank Rate will be cut faster than most expect, to 3.00% by the end of 2025, suggests that further reductions in mortgage rates lie ahead. We think the average mortgage rate will drop from close to 5% now to 3.5% by end-2025. The recent signs are that, rather than using lower mortgage rates to save on mortgage repayments, buyers will instead opt to borrow more to increase their house-buying budget. Therefore, after a 3% increase in prices in 2024, we think they will rise by 5% in 2025, up from 1% in our previous Outlook. That would put transactions and mortgage approvals on track to recover to pre-pandemic levels next year, though construction is still likely to disappoint.
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