Will mortgage rates in 2025 experience a hike or offer relief to prospective and current homeowners?
Renovation and Self-Build Mortgages Set for Growth in 2025
The housing market is gearing up for an exciting year ahead, with renovation and self-build mortgages expected to gain significant traction in 2025. Here's a breakdown of the trends shaping this sector, based on expert predictions.
Declining Mortgage Rates and Moderate House Price Increases
Mortgage rates are projected to decline in 2025, with the average 30-year fixed mortgage rate dropping from about 6.6% in 2024 to approximately 5.9%. This reduction in borrowing costs makes it easier for buyers, including those seeking renovation and self-build loans, to qualify and afford financing.
Simultaneously, home prices are expected to increase moderately, with a national rise around 4.1% in 2025, although some forecasts predict slight declines or flat trends by year-end depending on market location and supply conditions. This mix implies that while prices may climb, the slower pace may help sustain affordability relative to borrowing costs.
Increased Demand for Renovation and Self-Build Mortgages
The combination of lower interest rates and modest house price growth tends to encourage both buying and remodeling activities. Renovation mortgages, which finance home improvement projects, could see increased uptake as homeowners take advantage of lower rates to enhance or expand existing properties rather than move.
Self-build mortgages, financing construction of new homes, may also benefit. Although single-family housing starts are projected to have a slight decline or slow growth in 2025, improving financing conditions due to rate declines and stabilized home prices can stimulate self-build demand, especially as inventory constraints persist.
Costlier Home Equity Lending
However, despite rate improvements, home equity-related lending remains relatively expensive, with home equity lines of credit (HELOCs) and loans still averaging rates above 7%, making these less attractive compared to traditional mortgages for renovation financing, though some borrowers may still leverage home equity if needed.
Government Support and Flexible Financing Options
Experts predict that the government will introduce a replacement for the Help to Buy scheme in 2025. Additionally, prospective buyers should explore flexible financing options, including innovative government schemes and bespoke lender offerings, to secure the best deals.
Expert Insights
Aaron Forster, an experienced mortgage broker and financial advisor with over 18 years in the industry, predicts a busy year for remortgages in 2025. Tim Parkes, CEO of RAW Capital Partners, cautions that the Consumer Price Index (CPI) could tick up in the coming months, potentially resulting in a slower pace of base rate cuts than previously predicted.
Paresh Raja, CEO of Market Financial Solutions, emphasizes the importance of lenders providing a diverse range of bespoke and flexible financial products to help build momentum in the property market.
In conclusion, 2025 could be an opportune year for property investment or homeownership due to mortgage rates likely trending downward and house prices poised to rise. However, potential challenges such as inflation and construction material shortages could impact those looking to build their own home.
[1] Source: Bankrate.com [2] Source: ValuePenguin.com [3] Source: Zillow.com [4] Source: Realtor.com [5] Source: National Association of Home Builders (NAHB)
- With the projected decline in mortgage rates and moderate increase in home prices, there is an anticipated growth in demand for renovation mortgages as homeowners opt to improve their existing properties.
- The stabilized home prices and improved financing conditions due to rate declines can stimulate the demand for self-build mortgages, even with a slight decrease or slow growth in single-family housing starts.
- Despite the decline in mortgage rates, home equity-related lending is still considered relatively expensive, making traditional mortgages more attractive for renovation financing.
- In 2025, experts predict that the government will introduce a new scheme to replace the Help to Buy scheme, while potential buyers should consider exploring flexible financing options like innovative government schemes and customized lender offerings.
- Experts such as Aaron Forster, Tim Parkes, and Paresh Raja, believe that 2025 could offer excellent opportunities for property investment and homeownership, but warn against potential challenges like inflation and construction material shortages.
