How does Rest Less make money
We make money through advertising and commission from affiliate links, which enable us to offer Rest Less as a free service to our users. The content on this page may use affiliate links, which track traffic from our website to a third party provider and enable us to receive a commission or payment from any traffic we refer.
* Affiliate links on this page have an * next to them. We place enormous importance on our editorial independence and the integrity of our content which means that we will never change how we write about something as a result of an affiliate link.
Anyone hoping to buy a home or who is nearing the end of their current mortgage deal may be wondering what lies ahead for mortgage rates in 2026.
As inflation continued to ease in 2025, the Bank of England reduced the base rate four times over the year. This saw lenders gradually reduce rates , with fixed deals falling below 4% for the first time in a while.
However, as the past few years have demonstrated, no-one can be certain what the future holds for mortgage rates, which can make it difficult to work out how best to proceed.
Here, we look at what could lie ahead in 2026 for mortgage rates, how to choose the right deal for you, and some of the ways you might be able to bring down your mortgage costs.
Advertisement
Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
Contents
- What happened to mortgage rates in 2023?
- Will mortgage rates keep falling in 2024?
- What are mortgage rates based on?
- Where could rates stand in 2024?
- Choose you choose a fixed or variable mortgage?
- What if I can’t afford my mortgage payments in 2024?
- How can you reduce mortgage costs?
- Get expert mortgage advice
What happened to mortgage rates in 2025?
This year has been difficult for homeowners and those wanting to buy a property, due to ongoing economic uncertainty in the UK.
Thankfully mortgage rates started to ease as inflation slowed, with the Bank of England cutting rates to their lowest level since February 2023 by the end of the year. Read more in our article Interest rates cut to 3.75%: what it means for you.
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group, said: “For households, the immediate impact will be felt most clearly by borrowers. Those on variable rates or approaching the end of a fixed mortgage or loan deal should start to see some relief as lenders gradually pass on lower rates. That said, further cuts aren’t guaranteed to come quickly. With policymakers signalling caution about how far and how fast rates can fall, this is a sensible moment for borrowers to review their options and make sure they’re on a deal that suits their circumstances.”
According to research by financial analyst Moneyfacts.co.uk, the average two-year fixed rate is now 4.86%, and the average five-year fixed rate is 4.91%. However, for those with a significant deposit if buying, or a large amount of equity in their homes if remortgaging, much lower rates are available, with the lowest two year fix currently at 3.55% and the lowest five year fix at 3.75% (at the time of writing).
Will mortgage rates keep falling in 2026?
Without the help of a crystal ball, no-one knows exactly what will happen in the future, but markets currently expect at least one but probably two further base rate cuts in 2026.
Swap rates are down month on month, so there could be room for further reductions. But no-one can predict with certainty where rates will move this year as it depends on a wide range of factors, including interest rates, inflation and the broader economic picture.
Swap rates are the rates that banks and building societies charge each other to borrow money. They are are affected by the wider economic outlook and predicted movements in the Bank of England’s base rate.
Meanwhile, inflation has dropped during the past year, although it remains higher than the Bank of England’s 2% target, at 3.6% in the year to November.
However, if economic growth remains lacklustre, this may lay the groundwork for a more marked easing in price pressures in 20256and potentially more significant interest rate cuts.
What are mortgage rates based on?
There are a range of factors involved in determining mortgage rates in general, including competition in the market and rates on offer by other lenders. The lender’s own cost of borrowing is another major factor, which is impacted to a large extent by the swap rate market and the Bank of England (BoE) base rate.
The rate you will receive personally also depends on the size of the deposit you can put down, or the amount of equity you have in the property if you’re remortgaging, along with your personal circumstances including how much you earn, and your outgoings.
Mortgage rates tend to be more expensive if your circumstances are quite complex, which limits the pool of lenders available and thus a specialist lender may be required. For example, if you are recently self-employed, have adverse credit, or need to stretch affordability.
Should you choose a fixed or variable mortgage?
Whichever direction rates go in 2026, you may be wondering whether you should choose a fixed rate or variable mortgage deal. Around three-quarter of UK homeowners are currently on fixed-rate mortgage deals, with a set interest rate for a specific period of time of usually two, three or five years.
The most obvious benefit of a fixed deal is the security of knowing exactly how much you’ll be paying in monthly mortgage repayments for the deal’s term, no matter what happens to the Bank of England base rate. However, if interest rates fall, you won’t benefit from a reduction in repayments. Read more about the standard differences between these types of mortgages in our article Should I go for a fixed or variable rate mortgage?
However, tracker deals are also often more flexible with many having no early redemption charges, which means borrowers are free to move onto a fix if rates fall at a later date.
The latest fall in rates is certainly good news for borrowers when compared to the rates of only six months ago. Those coming to the end of a low fixed rate will still have to deal with rising monthly payments but at least some of the pain will have eased as a result of these improvements.
What if I can’t afford my mortgage payments in 2026?
Borrowers may already be struggling to afford higher mortgage costs on top of the rising cost of living. If you’re worried about your finances, you can read our guide Are money worries affecting your mental health?
If you know you won’t be able to afford to pay your mortgage, get in touch with your lender as soon as possible. They may be able to provide you with options that could help you reduce your monthly payments, for example, lengthening your mortgage term. Find out more in our article What can you do if you can’t pay your mortgage?
How can you reduce mortgage costs?
Many people are worried about how they will manage steeper mortgage payments when their current mortgage deal ends, but there are steps you might be able to take to reduce the impact of higher rates.
If you have savings set aside, you may want to consider making mortgage overpayments, so that you can reduce your mortgage balance more quickly. Most lenders will allow you to repay up to 10% of your mortgage balance each year without penalty, but check your deal’s particular terms before you start overpaying. Read more in Should I overpay my mortgage?
If you don’t have savings available to reduce your mortgage, and know you won’t be able to afford higher mortgage costs when your current deal ends, talk to your lender as soon as possible, and start thinking about ways you might be able to reduce your monthly payments. For example, if you’re a homeowner who is over 55, you may want to consider seeking advice on alternative mortgage options, such as retirement interest-only mortgages. Like standard interest-only mortgages, you only pay the interest on your mortgage amount. You don’t have to worry about repaying the original loan, which is only repaid when you die or move. Find out more about the pros and cons of this type of mortgage in our article How retirement interest-only mortgages work.
If your mortgage deal is ending within the next six months, it’s a good idea to start looking for your next deal sooner rather than later. Most lenders will allow you to secure your next mortgage up to six months in advance, so ideally you should start your search at this point.
Get expert mortgage advice
A broker can help you to find the cheapest mortgage deal for your circumstances, and continually review your rate and ensure you secure the best rate until your deal starts. A broker can also do the sums on your behalf, as once you factor in mortgage fees, you may find that the lowest rate isn’t the best one for you. Read more in our article Why the lowest rate mortgage may not be the cheapest deal.
Advertisement
Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
Rest Less Money is on Instagram. Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.
Join the discussion
Read our full commenting terms and guidelines