Are UK Mortgage Rates Heading Below 3.5% in 2026 as Bank of England Eyes March Base Rate Cut?

Mortgage rates have already eased from their peaks, but most borrowers still see “4-point-something” when they look at typical fixed-rate deals. The question now is whether 2026 becomes the year where sub-3.5% pricing returns more widely — and whether expectations of a March Bank Rate cut are enough to get us there, or whether the market needs more convincing.

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

What Is Moving UK Mortgage Pricing in Early 2026

The Bank Rate is currently 3.75% after the Bank of England’s Monetary Policy Committee voted 5–4 to hold in its February 2026 decision, with four members preferring a 0.25 percentage point cut. The next scheduled Bank Rate announcement is on 19 March 2026, which matters because even the expectation of a cut can affect funding costs and swap rates that feed into fixed mortgage pricing.

It’s also worth separating “Bank Rate” from “mortgage rates”. Tracker mortgages (and many standard variable rates) can respond quickly if lenders pass on changes. Fixed-rate mortgages, however, are usually priced more off longer-term market rates (often SONIA-based swap rates) and lenders’ appetite for business, rather than moving in a neat step with Bank Rate on decision day.

Mortgage One is a qualified mortgage adviser and appointed representative of Quilter Financial Services Ltd. A good adviser can help you interpret what is market noise versus what tends to change real pricing, and how timing, fees and loan-to-value (LTV) can matter as much as the headline rate.

Why A March Base Rate Cut Is Being Discussed

Inflation data has become more supportive of gradual rate cuts. The Office for National Statistics said CPI inflation was 3.0% in January 2026, down from 3.4% in December 2025. Lower inflation can reduce pressure on the Bank of England to keep policy restrictive, especially if it looks set to move closer to the 2% target.

The jobs market has also softened, which can take heat out of wage-driven inflation. The Office for National Statistics reported the unemployment rate at 5.2% (three months to December 2025) and annual growth in average earnings at 4.2% (October to December 2025). A cooling labour market can be one of the conditions that allows the Bank of England to cut without fearing inflation will re-accelerate.

That said, “discussed” is not the same as “decided”. Market pricing can shift quickly between now and 19 March 2026, and the Monetary Policy Committee will weigh not just headline inflation but also services inflation, wage persistence, and how inflation expectations are behaving.

On the expectations side, a Reuters poll (published 16 February 2026) reported that a majority of economists surveyed expected a 25bp cut to 3.50% at the 19 March meeting, while also noting uncertainty about the timing of further cuts. This matters because fixed-rate pricing often moves ahead of confirmed decisions if markets become more confident about the path of rates.

How Swap Rates Translate Into Fixed Mortgage Deals

A simple way to think about fixed-rate pricing is: lenders need to fund a mortgage and manage the risk that interest rates move against them. Many lenders hedge this interest-rate risk using the wholesale market, and SONIA swap rates are a common reference point for that cost of hedging. SONIA (Sterling Overnight Index Average) itself is an overnight benchmark rate based on actual transactions, but swap rates reflect expectations for where short-term rates may average over longer periods.

When swap rates fall, lenders can often (not always) price fixed deals lower, assuming their other costs and risk appetite allow it. When swap rates rise, fixed deals typically become more expensive, even if Bank Rate hasn’t moved yet. That is why headlines about “markets pricing cuts” can show up in fixed rates before a Monetary Policy Committee meeting happens.

As a snapshot of where the market had been in early February, one UK money-markets dashboard (citing Chatham Financial data) showed SONIA swap rates around 3.42% (2-year) and 3.66% (5-year), with the dashboard noting figures were correct as of 06/02/2026. These are not the mortgage rates you’ll be offered, but they help explain why lenders may feel able to compete more aggressively when the underlying curve is falling.

The gap between a swap rate and a mortgage rate is not a fixed “margin”. It includes operational costs, capital requirements, expected credit losses, the cost of offering incentives, broker fees (where applicable), and how strongly a lender wants to grow (or slow) lending in a given segment. That’s why you can sometimes see a lender price a headline rate lower but pair it with a larger product fee, or restrict it to lower LTV bands.

What Would Need To Happen For Sub-3.5% Mortgages

Sub-3.5% deals are already appearing at the very sharp end of the market in certain scenarios, particularly for borrowers with strong deposits/equity and low LTVs. In late January 2026, MoneySavingExpert reported that the lowest two-year fixed rates on the open market were about 3.5% (and five-year fixes about 3.69%), with remortgage fixes starting a little higher. Those “from” rates can change quickly, and they tend to be limited by LTV, fees and eligibility, but they show how close the market already is to printing a “3” in the mainstream.

For sub-3.5% to become meaningfully more available (not just a few headline-grabbing deals), a few things usually need to line up at the same time:

First, markets need confidence that Bank Rate will keep drifting down after March, not just one cut and pause. A single quarter-point cut can help sentiment, but sustained sub-3.5% mortgage pricing typically needs the medium-term swap curve to sit lower for long enough that lenders feel safe competing hard without being caught out by a reversal.

Second, swap rates would likely need to fall further, particularly in the 2–5 year area that most directly influences popular fixed terms. If 2-year swap rates sit in the mid-3s, the “room” for lenders to offer lots of sub-3.5% fixed deals (after costs and capital) can be limited, unless they are using pricing as a strategic loss leader in a narrow slice of business.

Third, competition needs to stay intense. If lenders want to grow market share — and they have stable funding and risk appetite — they can compress margins. If they are more cautious (for example, due to arrears risk, funding costs, or concentration limits in buy-to-let), pricing may not fall as far as the swap curve suggests.

Finally, the fee story matters. A 3.49% deal with a large arrangement fee may not be cheaper in total cost than a 3.79% deal with a smaller fee, depending on loan size and how long you keep the mortgage. The right comparison is usually the total cost over your intended period, not the headline rate alone.

It’s also important to keep perspective on averages. Moneyfacts reported that at the start of January 2026, average fixed rates were still around 4.83% for a two-year fix and 4.91% for a five-year fix, even as the trend was down. That gap between “best-buys” and “average” is exactly why many borrowers may not feel the market has improved yet, even when headlines say rates are falling.

Who Might See The Biggest Impact: First-Time Buyers, Remortgagers And Landlords

If rates keep easing, the borrowers most likely to benefit first are those who can access the most competitive LTV bands (often 60% LTV, sometimes 75% depending on the lender and product). That tends to mean home movers with sizeable equity, and remortgagers who have paid down their balance or seen price growth. First-time buyers can benefit too, but the best pricing usually requires a larger deposit.

Remortgagers are a key part of the 2026 story because so many fixed rates are scheduled to end. UK Finance’s mortgage market forecast for 2026 said it expected overall gross lending to rise 4% to £300 billion in 2026, and noted that around 1.8 million fixed-rate mortgages were due to come to an end. More borrowers shopping around can push competition up — but it also means lenders may be selective, competing hardest where the risk-return looks best.

For buy-to-let landlords, lower rates can help affordability tests, but pricing and criteria can behave differently from the owner-occupier market. Lenders may factor in rental coverage stress tests, property type, borrower profile, and portfolio concentration. Even if “headline” owner-occupier deals start with a 3, buy-to-let pricing might lag — or it might not — depending on funding, risk appetite and how lenders view rental market conditions.

For expats and seafarers, the interest-rate story is only one part of the equation. Lender choice can be narrower, and underwriting can put more weight on income type, currency, contract structure and documentation. If rates are falling, that can improve outcomes at the margin, but eligibility and evidence remain decisive.

Risks That Could Keep Rates Higher, For Longer

There are clear reasons the market is hopeful about cuts, but there are also reasons mortgage rates might not fall as quickly as borrowers expect.

The Bank of England has been explicit that it wants to be confident inflation will fall back to target and stay there. In its “latest decision” communication around the February 2026 hold, it said inflation was likely to fall back to the 2% target later in the spring, but emphasised it needed to be sure, while also noting that if the economy evolves as it expects, there should be scope for some further cuts this year. That balance — optimism with caution — is why markets can swing between “fast cuts” and “slow cuts” depending on a few data releases.

Sticky services inflation, a rebound in energy costs, or renewed wage pressure could all slow the pace of cuts. So could global factors: if other central banks hold rates higher, sterling weakness could add inflation pressure via imports, potentially making the Bank of England more cautious.

There is also a practical mortgage-market risk: lenders don’t price purely off macroeconomics. If arrears rise, if funding becomes more expensive, or if lenders simply decide they have written enough volume in a segment, the most competitive rates can disappear quickly even when swap rates are calm. Conversely, if competition heats up, lenders can cut rapidly and repeatedly without waiting for official decisions.

Practical Timing Decisions If Your Deal Ends In 2026

If your fixed deal ends in 2026, the “right” timing is rarely about guessing the exact bottom of the rate market. It is more often about managing risk and optionality:

If you are within a typical product-transfer or remortgage window, you may be able to secure a rate now and still switch later if pricing improves before completion, depending on lender and product rules. Not all products allow this and fees can apply, so it’s important to check the details.

If you are on a tracker, a March cut (if it happens) could feed through quickly. But trackers can rise as well as fall, and the monthly payment volatility is real — especially if inflation surprises force the Bank of England to pause or reverse course.

If you are choosing between a shorter fix and a longer fix, the key trade-off is certainty versus flexibility. A longer fix can stabilise budgeting, but you may pay for that insurance if rates fall faster than expected. A shorter fix can let you reset sooner, but exposes you to refinancing risk if the market moves the wrong way or your circumstances change.

For buy-to-let, stress testing and rental coverage can be the deciding factor. Even if headline rates are falling, affordability calculations and fees can shape what is actually available.

Key numbers to watch (these move markets and, by extension, mortgage pricing):

• Bank Rate: 3.75%

• Next Bank Rate decision: 19 March 2026

• CPI inflation: 3.0% (January 2026)

• Unemployment rate: 5.2% (three months to December 2025)

• Regular earnings growth: 4.2% (October to December 2025)

• SONIA swap snapshot: 2-year 3.42%, 5-year 3.66% (dashboard notes data correct as of 06/02/2026)

• Lowest open-market fixed rates (late January 2026): 2-year from ~3.5%, 5-year from ~3.69%

Figures as of 19 February 2026 London

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 Mortgage One. We can explain your options and timings based on your specific circumstances.

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

FAQs

1. Are UK mortgage rates likely to fall in 2026?
They can fall if funding costs (often linked to swap rates) keep easing and lenders stay competitive, but it depends on inflation, jobs data and the Bank of England’s path for Bank Rate.

2. Will a March 2026 Bank Rate cut automatically reduce fixed mortgage rates?
Not automatically. Fixed rates often move ahead of decisions if markets expect cuts, and can also rise even when Bank Rate is unchanged if swap rates move higher.

3. What needs to happen for fixed mortgage rates to drop below 3.5% more widely?
Typically, the market needs sustained confidence in further Bank Rate cuts and lower 2–5 year swap rates, plus continued lender competition. Wider availability also depends on LTV bands and fees.

4. Are there already mortgages below 3.5% in 2026?
Some headline deals have been close to 3.5% for borrowers with strong deposits/equity, but availability can be limited by LTV, fees, credit profile and product criteria.

5. Do tracker mortgage rates fall immediately when the Bank of England cuts rates?
They often do if the tracker is directly linked to Bank Rate and the lender passes on the change, but you should check your mortgage terms and whether any lag or collars apply.

6. Should I wait to remortgage in case rates fall further?
Waiting can work out, but it also carries risk if rates rise or if your circumstances change. Many borrowers focus on securing an acceptable deal with flexibility to switch if pricing improves.

7. Why do the lowest “best-buy” rates feel far below the average rates?
Best-buys are usually restricted to low LTVs and may include higher fees. Average rates reflect a broad mix of products, LTVs and borrower profiles across the market.