The base rate cut, expectations of further reductions and intensifying competition between lenders are combining to push mortgage rates lower, materially boosting buyers’ spending power and setting the housing market up for a stronger 2026.
With inflation down to 3.2 per cent, economists at Deutsche Bank are predicting two more base rate cuts in 2026, potentially taking the rate to 3.25 per cent or even as low as 3%. At the same time, lenders are competing aggressively for business in a quieter market as they look to hit their lending targets.
There is likely to be somewhat of a rate war in January.”
Chris Sykes, of mortgage broker MSP Financial, said: “There is likely to be somewhat of a rate war in January. There often is quite competitive pricing in January and February as some lenders like to start the year strong.”
Simon Gammon, of estate agency Knight Frank, added: “With new lending targets in place, lenders are likely to undercut one another to win that early-year business. It’s not impossible that we see two-year fixed rates below 3pc by spring.”
£3k less per year
The impact on affordability is substantial. Based on the current Halifax house price index average of £299,892, and a typical purchase mortgage with a 25 per cent deposit, a buyer would borrow roughly £225,000. At mortgage rates of a year ago, monthly repayments would have been in the region of £1,300–£1,350. If rates fall into the low-3 per cent range, that monthly cost would drop to around £1,100, a reduction of roughly £200–£250 a month, or around £2,500–£3,000 a year.
Most forecasters expect modest house price growth in 2026 of between 2 and 4 per cent, but if the base rate continues to be cut and the cost of mortgages goes with it, it could push prices and activity significantly higher.
