The Bank of England has cut its base rate to the lowest level seen in nearly three years.
The nine-member Monetary Policy Committee opted to reduce the rate to 3.75%, taking it below 4% for the first time since January 2023.
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Andrew Bailey, the Bank’s governor, was the only member to change their vote from the last rate decision, pushing the committee to a 5-4 result in favour of a cut.
It’s good news for homebuyers, property owners looking to remortgage or refinance and those with a variable rate mortgage.
Industry insiders have told Money that they expect mortgage rates to reach lows of 3% by the end of 2026 – a figure that is historically considered cheap in the mortgage market.
Here’s what they think borrowers should expect in 2026…
Bank of England rate cut to 3.75% following fall in inflation
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Interest rate cut brings Christmas cheer but there’s good reason for caution ahead
What happens next?
While lenders rarely offer borrowers the Bank of England’s base rate, they use it (plus a number of other factors like swap rates and competition in the market) to set their own.
So when it falls, mortgage rates tend to follow suit.
Over the next year, the Bank of England expects the rate to continue to fall.
But with the 2010s era of ultra-low mortgage rates dead and buried, how low can we actually expect mortgage rates to fall?
Ben Perks, managing director at Orchard Financial Advisers, said the vast majority of borrowers won’t see 1% and 2% again in their mortgage lifetime, but rates in the 3% region could arrive in the next few months.
“Early to mid 3% rates are palatable for most mortgage holders. That’s where they should stay for the foreseeable future,” he said.
‘High-2% rates could appear – I see a steady path downwards’
Vijay Rabadiya, founder of brokerage The Mortgage Vine, believes fixed rates of 3.85% to 4.35% will become the new norm by the middle of next year, before falling further at the end of 2026.
“If the current trajectory holds, I think mid-3% mortgage products will be achievable by late 2026, with the possibility of high-2% rates only if inflation stays at target for a sustained period,” he said.
“Overall, I see a steady glide path downwards rather than a sudden drop, with lenders leading the shift ahead of the Bank of England.”
Rates will ‘slide down and not fall’
Justin Moy, managing at brokers EHF Mortgages, expects lenders to keep trying to boost the housing market with reduced rates, but agrees that they will “slide and not fall”.
“Most lenders are aiming for 3.5% as the next benchmark,” he said.
“Historically, rates in the 3%’s are cheap, so lenders and mortgage holders may start to think about those ultra-long-term deals, especially where affordability continues to be tight.”
New year, new rates?
Lenders could cut rates to start the new year with a bang, according to Michelle Lawson, director at mortgage brokers Lawson Financial.
But she doesn’t think there’ll be much more movement after that…
“We have seen a lot of policy enhancements as lenders try to tempt the market with additional borrowing power and rates starting with a 3,” she said.
But she added: “It is unlikely rates will fall significantly lower but remain steady.
“Overall, the market will likely remain stable with organic adjustments unless a curveball comes out of nowhere.”
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‘Adjust your expectations’
Other experts were not as optimistic, saying the norm will become lenders offering 3.5% mortgage rates.
“Sticky service inflation prevents the Bank from cutting aggressively. Because swap rates have flattened, lenders have little room to drop fixed rates significantly further. We are moving from volatility to stability, and 3.5% is the destination,” said Shaun Sturgess, director at Sturgess Mortgage Solutions.
“Borrowers need to adjust their expectations: the era of near-zero interest is over, and we are rapidly settling into a ‘new normal’ of around 3.5%.”
‘Locking in a five-year fix now is a solid choice’
Aaron Strutt, director at Trinity Financial, agreed, saying the lowest two-year fixes already start from 3.51% and the best three-year fixes are not much more expensive.
“Over the next few months, I hope we will have more lenders offering fixed rates closer to 3.5%, which will get us back into the territory of cheap mortgages again.
“Most borrowers are opting for two-year fixes at the moment as they tend to be lower than the five-year fixes.
“If you preferred certainty, have a stable income and plan to stay in your home for several years – locking in a 5-year fix now, especially with a lender like Santander, Nationwide or NatWest – seems a solid choice.
“If you’re more flexible or willing to take a bit of a gamble, or you might move in a few years, or you expect rates to fall significantly, a two or three-year fix is a good option.”
