Scottish Housing Market Review: Q1 2025

6. Mortgage Interest Rates

After a tightening cycle which took Bank Rate from 0.1% prior to the December 2021 Monetary Policy Committee (MPC) meeting to 5.25% following the August 2023 meeting, its highest level since 2008, the MPC held Bank Rate steady for the following 12 months. Starting at the August 2024 MPC meeting there have been 3 cuts of 0.25% points each. At its most recent meeting (March 2025) the MPC held Bank Rate steady at 4.5%.

Chart 6.1 and Chart 6.2 shows the effective (or average) interest rates on outstanding mortgage balances and new mortgage advances. [Source: Bank of England]

Reflecting the easing in Bank Rate since the second half of 2024, over the year to February 2025, the average interest rate for new floating-rate mortgage advances has fallen by 0.59% points to 5.38%, while for fixed-rate mortgages it has fallen by 0.31% points to 4.47%. As a result, the average rate for all new mortgages has fallen by 0.37% points to 4.54%.

While the average rate on outstanding variable-rate mortgages has also fallen over the last year in response to the cuts in Bank Rate (by 0.74% points to 6.15%), the average rate on outstanding fixed-rate mortgages has continued to trend up (by 0.61% points to 3.62%) as the period of their fix ends and mortgages are refinanced at higher rates – this applies particularly to mortgages which had longer-duration fixes. As the vast majority of borrowers are on fixed-rate mortgages (see Chart 6.4), the average rate on all outstanding mortgages has also increased over the last year (by 0.38% points to 3.87%)

Effective monthly interest rates on mortgage lending to households: UK (Data as at month-end, to November 2024)

Source: Bank of England

Bank of England data on advertised mortgage rates (as opposed to data in Chart 6.1 which is based on interest actually paid) also shows that advertised mortgage rates are significantly off the peaks reached during the current interest-rate cycle: the average advertised two-year fixed rate for a 75% LTV mortgage has fallen from a 6.22% in July 2023 to 4.66% in February 2025 (down 1.56% points), while the average advertised rate for a 90% LTV mortgage has fallen from 6.57% in August 2023 to 5.26% in February 2025 (down 1.31% points). Due to the slightly larger fall in the 75% LTV rate, the spread between the two LTV values has widened since 2023, standing at 0.6% points in February 2025.

Source: Bank of England

Data from the Moneyfacts Treasury Report, also relating to advertised rates,^[3] shows that the average 2-year fixed-rate mortgage interest rate decreased from 5.95% in July 2024 to 5.39% in November 2024, while the average 5-year rate decreased from 5.53% in July 2024 to 5.07% in October 2024. Subsequently, a small reversal in the previously downward trend in CPI inflation (which rose from 2.9% in Q3 2024 to 3.4% in Q4 2024, as shown in Chart 4.1) caused a temporary increase in rates, although they eased over the month to March 2025, so that the average 2-rate rate is now back to its previous low in 2024 of 5.39%, although the 5-year rate, at 5.22%, is slightly higher than its 2024 low.

Chart 6.4 shows that the vast majority of regulated^[4] mortgages are on fixed rates. The share of gross advances on fixed rates in Q4 2024 (94%) is just below the series high of 95% in Q3 2022, while the share of outstanding balances on fixed rates in Q4 2024 (89%) is the highest since the data series begin in 2007. (Source: FCA).

Source: FCA