Mortgage rates are unlikely to get to the levels they were at before the Covid pandemic

Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in, and we will get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at money@theipaper.com.

Question: We have a mortgage fix that ends in 2026 at a cheap rate of around 2 per cent. By the time we come to renew at the end of the year, how low is it likely rates will be?

Answer: You’re in a fortunate position, holding a 2 per cent fix until the end of next year. Many borrowers would give a lot for that stability while the rest of the market continues to recalibrate. But you’re right to look ahead, because the coming year will shape the new normal for mortgage costs.

Mortgage pricing is driven by swap markets, which reflect where investors think the Bank of England’s base rate is heading.

The latest SONIA swap curve puts five-year funding costs at around 3.56 per cent, down from almost 4 per cent a year ago. Markets expect the base rate, now at 4.75 per cent, to edge lower through 2025 and 2026, probably bottoming near 3.5 per cent before rising very gently over the following years.

That tells us two things. First, funding costs have already fallen quite a bit from last year’s highs. Second, no one is expecting a return to the sub-2 per cent world of the 2010s.

At the moment, high-street lenders such as Barclays and NatWest have already edged their best two-year fixes to around 3.9 per cent and five-year deals to just under 4 per cent.

Those rates line up neatly with where swap markets are trading, which tells us we’re close to the floor for this cycle. The forward curve – effectively the market’s crystal ball – points to only limited further movement.

Swaps are expected to dip a touch further next year before rising gradually, implying mortgage rates will hover in a narrow range rather than tumble. The era of big swings and weekly repricing seems to be fading, replaced by gentle adjustments as lenders compete for borrowers rather than react to volatility.

That should mean a calmer mortgage market. Inflation is back within touching distance of target, and most of the shocks that drove rates up so sharply in 2023 and early 2024 have washed through.

Lenders are now trimming rates in small increments, often a few basis points at a time, and the spread between the cheapest and most expensive deals has narrowed. We’re returning to a steadier pattern where competition, not panic, sets the pace.

For borrowers coming off low legacy fixes, even a move to 4 per cent will still feel steep, but it’s worth remembering that the long-term average for mortgage rates sits nearer 5 per cent.

What we’re seeing now is a reset to something more sustainable rather than a new crisis. With funding costs easing and lenders keen to rebuild market share, the focus has shifted from damage control to steady business growth.

The sensible plan for you is to stay on your current deal until it ends. Begin reviewing options around summer next year, roughly six months before expiry.

By then, we should have seen at least one or two base rate cuts and a clearer picture of how the market is bedding in.

You can usually secure a new rate up to six months in advance. If deals improve further in that window, most lenders will let you switch to the cheaper equivalent before completion.

There’s little sense in trying to catch the absolute bottom of the market. Mortgage pricing tends to anticipate base-rate moves months ahead, so by the time a cut is announced, much of the benefit is already priced in.

The aim should be to remortgage within a comfortable range rather than chase a perfect low that may only last a week.

The bottom line is that the worst of the turbulence appears to be behind us. The data points to a gentle settling of rates somewhere around 4 per cent for longer fixes, perhaps a little lower if markets stay calm.

It won’t feel as cheap as your current deal, but it will be far more stable than the rollercoaster of the past two years. Speak to a whole-of-market mortgage broker when the time comes; they can monitor daily pricing and make sure you secure the right deal at the right time as your fix draws to a close.