2026 Interest Rate Predictions:
Lender Forecasts and What It Means
for Your Mortgage

Headline interest-rate forecasts suggest that 2026 could bring much-needed breathing space for borrowers — with many analysts predicting a meaningful fall in the UK base rate. As the lending landscape responds, 2026 may mark the beginning of a more borrower-friendly environment for homeowners, first-time buyers, remortgagers and buy-to-let landlords.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

When Could Base Rate Fall — And How Far?

Forecasts ahead of 2026 point to several rate cuts from the current base level of 4.0%, potentially bringing the base rate down to between 3.5% and 3.75% by mid-2026.
Some economists and market watchers are more bullish: one projection sees the base rate reaching as low as 3.25% by late 2026 — a figure echoed by macro-economic models.
Not all forecasts agree. A minority expect that base rate will remain closer to 4.0%, especially if underlying inflation or economic uncertainty persists.

Why Rate Cuts Are Back On The Table — And What Could Stop Them

Lowering of base rate looks plausible if inflation continues to moderate. Core inflation (excluding volatile items like energy and food) has softened in recent months — a trend the Bank of England monitors closely.
Economic growth is expected to be subdued in 2026, with the UK economy forecast to grow by only around 1%.
That combination — milder inflation and weak growth — would give the BoE room to ease. Some forecasts assume it may end its easing cycle in mid-2026, reaching a base rate floor around 3.5%.
Still, rate cuts are not guaranteed. If inflation remains sticky, global economic shocks hit, or domestic wage and price pressures resurface, the BoE may pause or slow further reductions.

What It Could Mean For Mortgage Borrowers

• Variable-rate or tracker mortgage holders — Borrowers on mortgages that follow base rate (or are linked to it) are likely to see monthly repayments fall if rate cuts materialise. The impact could be felt within months of a BoE decision.

• Fixed-rate mortgage borrowers — Lower base rates don’t automatically reduce existing fixed-rate mortgages. However, when it’s time to remortgage or fix again, borrowers may find more competitive offers.

• Remortgagers approaching deal end in 2026 — If your current fixed deal ends in 2026 or early 2027, you might be able to lock in a lower interest rate than currently available — especially if rates have already dropped by then.

• Buy-to-let landlords — Lower mortgage costs may improve yield for landlords, especially those on variable or interest-only mortgages. But rental demand, tenant affordability and regulatory considerations remain important.

Wider Market Impacts: Lending, Demand and Property Prices

Lower base rates, combined with more competitive lender pricing, could revive demand for mortgages — albeit gradually. According to the EY ITEM Club, UK mortgage lending growth is expected to slow to around 2.8% in 2026 (down from 3.2% this year) before potentially rebounding in 2027.
However, mortgage affordability remains a challenge. Sluggish real income growth and persistent living-cost pressures may limit how many buyers or remortgagers take advantage of lower rates.
House-price growth is likely to remain modest. The broader economic backdrop — slow growth, cautious lenders, regulatory constraints — suggests prices may not surge sharply even if borrowing becomes cheaper.

Key Numbers (as of early December 2025 London)

• Bank of England Base Rate: 4.0%

• Predicted Base Rate by mid-2026: 3.5%–3.75% (some forecasts as low as 3.25%)

• Forecast UK mortgage lending growth in 2026: 2.8% net increase

What This Could Mean For First-Time Buyers, Remortgagers and Landlords

If base rate cuts proceed and mortgage providers pass savings on, borrowers could see better affordability — a welcome boost for first-time buyers ready to act, remortgagers chasing lower payments, and buy-to-let landlords managing financing costs. But affordability pressures — from weak income growth and cost-of-living pressures — may dampen demand. For many borrowers, the benefits may be modest rather than dramatic.

The reduced borrowing growth suggests a gradual recovery — not a boom — but potentially the start of a more borrower-friendly environment, especially for those prepared to act when rates drop.

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. If you’d like to understand what these moves could mean for you, speak to a qualified mortgage adviser.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Frequently Asked Questions

1. Will mortgage rates definitely fall in 2026?
   No — many forecasts point to rate cuts, but much depends on inflation, economic growth and decisions by the Bank of England.

2. When could borrowers see lower mortgage payments?
   Owners of variable-rate or tracker mortgages could see reductions relatively soon after any base rate cut. Those on fixed-rate deals will benefit when their fixed term ends or when remortgaging.

3. If I’m remortgaging in 2026, should I wait for rates to drop?
   It may be beneficial to reserve a rate now - call Mortgage One for a chat - timing matters, and market conditions might change.

4. Could house prices rise if mortgage rates fall?
   Possibly. Lower borrowing costs may boost demand, which could support house prices — though economic headwinds, incomes and supply will also play major roles. If people can afford more they will pay more

5. Will buy-to-let landlords benefit from rate cuts?
   Landlords with variable-rate or interest-only buy-to-let mortgages may see lower borrowing costs. But rental demand, regulation and yield remain key factors.

6. What risks could derail expected rate cuts?
   Persistent inflation, global economic shocks, or domestic wage and price pressures could cause the Bank of England to pause or reverse planned cuts.

7. How reliable are these forecasts?
   They are educated predictions based on economic data and market expectations — but they remain subject to change. They provide guidance, not certainty.