UK Interest Rates Forecast 2025-2028: Expert Guide for International Property Investors

The UK property market faces renewed uncertainty as we enter 2025, with recent dramatic movements in bond yields and sterling creating a complex landscape for international investors. Let's explore what this means for property investment decisions.

The Bond Market Storm

At the time of writing (Jan 2025), the UK gilt market has experienced significant turbulence, with the 10-year gilt yield reaching 4.9% - its highest level since 2008 - while the 30-year gilt yield has surged to 5.4%, a level not seen since 1998. This sharp rise in government borrowing costs has been accompanied by an unusual concurrent weakening of sterling, dropping below $1.23.

Global Factors at Play

This market volatility isn't solely a UK phenomenon. The turbulence stems from several factors:

• Concerns about incoming US President Trump's trade policies and their potential inflationary impact

• Growing worries about persistent UK inflation, currently at 2.6%

• Market uncertainty following the UK's recent budget decisions

Impact on Mortgage Rates

Current Market Response
The immediate effect on mortgage rates has been measured, with the average two-year fixed rate at 5.05% and five-year fixed at 4.80%. However, several smaller lenders have already begun increasing their rates in response to the bond yield surge.

Future Outlook
The trajectory for mortgage rates appears less favorable than previously anticipated:

• Markets now expect only 40 basis points of rate cuts in 2025, down from 60 basis points predicted in December

• The likelihood of a February rate cut has decreased from 66% to 64%

• Some mortgage lenders are already withdrawing their most competitive rates

Opportunity for International Buyers

Despite these challenges, the current market presents unique opportunities for international investors:

• The weaker pound provides enhanced buying power for overseas investors

• Prime London locations continue to attract international capital, with foreign buyers accounting for nearly 50% of super-prime transactions

• Regional investment opportunities remain attractive, with cities like Manchester and Liverpool offering strong yields

Navigating the Complexity

In this increasingly complex environment, securing appropriate financing requires expert guidance. At International Mortgage Solutions, we specialise in helping expats and foreign nationals navigate the UK mortgage market. Our deep understanding of lender criteria and extensive relationships with financial institutions enables us to secure optimal terms for our clients, even in challenging market conditions.Whether you're considering a prime London property or a student accommodation investment, our team can help structure your financing to maximise your investment potential while managing the risks associated with current market volatility.

Looking Ahead

While the market presents challenges, it's important to note that periods of uncertainty often create unique opportunities for well-advised investors. The combination of currency advantages and potential property price adjustments could provide attractive entry points for international buyers with a longer-term investment horizon.Contact our team to discuss how we can help you achieve your UK property investment goals in this dynamic market environment.

contact@mortgageims.com