Bank of England has cut the base rate today, as was widely expected, which will see more lenders offering better deals, experts say

Mortgage rates could fall below 3 per cent by spring next year, experts say, as a price war is expected between lenders in 2026.

In a rare piece of good news for Chancellor Rachel Reeves the Bank of England (BoE) cut interest rates by 0.25 percentage points to 3.75 per cent on Thursday, as was widely expected, which could push fixed mortgage rates below 3.5 per cent in the next few weeks and further in the new year.

Mortgage rates have already been falling in recent weeks, with several major lenders offering rates hovering just above 3.5 per cent.

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Simon Gammon, managing partner of Knight Frank Finance, said: “Lenders have been trimming rates for several weeks, but we think January will bring fresh momentum. The lenders begin the year with fresh targets and will be eager to make headway quickly.

Stage set for a price war

“The mortgage market isn’t likely to grow substantially in 2026, so the lenders will focus on taking market share. This sets the stage for a price war in the new year, led by the larger high street banks.

“Given that leading fixed rates now sit at 3.55 per cent, it’s possible that we see two-year fixed rates below 3 per cent by spring.”

Labour MPs hope that cooling inflation and lower mortgage rates will put more money into people’s pockets and lead voters to feel more optimistic about the economy, although they are not expecting an immediate poll boost.

Labour has made putting more money in people’s pockets a key aim of this Parliament, but have made little headway with a struggling economy.

Chancellor Rachel Reeves said that the six interest rate cuts since the general election was “the fastest pace of cuts in 17 years” and “good news for families with mortgages and businesses with loans”.

She went on: “But I know there’s more to do to help families with the cost of living. That’s why at the Budget we froze rails fares and prescription charges, and will be cutting £150 off the average energy bill next year.”

During a visit to a north London community centre, the Chancellor told broadcasters that the successive cuts in rates could knock £100 off monthly mortgage payments for first-time buyers.

A backbencher told The i Paper the rate cut was “good news”, but added: “In 2015 maybe there’d be a correlation between rates and party polling.”
“Now: no.”

The Conservatives said that the rate cut reflected underlying weakness in the UK economy.

Sir Mel Stride MP, the shadow chancellor, said: “Lower interest rates will be welcome news for many families – but rates are being cut despite inflation remaining well above target, thanks to rising unemployment and low growth under Labour.

Lenders eager to get market moving

Justin Moy, managing director at EH Mortgages, added: “It’s unlikely we will see a significant change before Christmas, given that the base rate cut expected today has already been priced into the current deals.

“Lenders will pull every trick to encourage the property market to start moving, as rates will continue to slide beyond that 3.5 per cent threshold.”

There are approximately 1.8 million homeowners on deals who will need to remortgage in 2026 as their deals expire, giving lenders an opportunity to entice customers with lower rates.

David Hollingworth, associate director at L&C Mortgages, said: “Rising market expectation of another rate cut has already helped to drive down the cost of fixed rate mortgages.

“That will be welcome news for those thinking about moving home or coming to the end of a deal, and lenders have shown little let-up in their repricing activity as the festive season approaches.

“I’d expect to see that competition to continue in the New Year, as lenders look to get off on the right foot.”

The average two-year fixed mortgage rate is 4.82 per cent, according to Moneyfacts, whilst the average five-year fixed rate is 4.9 per cent.

However, there are rates available for much cheaper on the market, with Santander offering a two-year fix deal of 3.55 per cent and NatWest offering a five-year fix deal for 3.75 per cent.

The best deals are reserved for those with the highest deposit or equity in their property.

Early 2026 a ‘golden era’ to buy

It comes as inflation fell by more than expected to 3.2 per cent in November, official figures showed this week.

The reading is the lowest since March and has helped prompt the BoE Monetary Policy Committee (MPC) to cut rates, experts say.

The Bank is also confident that inflation, while still above the 2 per cent target, will fall more quickly than expected, partly due to a push to cut electricity bills in the Budget and future oil and gas price forecasts.

Mortgage holders who are coming to the end of their fixed term may wonder whether to wait for a fall in rates or lock in a new deal now.

Experts have said it is possible to lock in a rate now and warned that whilst some rates will come down further, for others it might not be wise to wait.

Andrew Montlake, CEO of Coreco mortgage brokers, said: “Today’s cut will have the knock-on effect that mortgage rates look certain to decrease slightly and kick off a mortgage melee in the New Year.

“Lenders will be very keen to make the most of a market that is still waiting for pent up demand to be released and mortgage rates that consistently start with a 3 should be the norm for the year ahead.

“A word of caution should be given to those waiting for rates to fall even further as this does not seem to be the case, and the first part of next year looks like it could be a golden era to buy as mortgage affordability improves before house prices begin to rise once more.”

Meanwhile, people on variable or tracker rates, which follow the BoE’s base rate, will see an immediate drop to their monthly repayments.

Holly Tomlinson, financial planner at Quilter, said: “For mortgage holders, today’s expected cut will be most immediately felt by those on tracker and variable-rate deals, where monthly repayments should begin to edge down.

“For those with six months left on their current fixed mortgage deal, it can be worth securing a new fixed rate now to avoid moving onto a higher standard variable rate. Many lenders allow you to book a rate in advance, and you can review the market again before your new deal starts.”