Mortgage rates have started to level out after weeks of reductions, with experts warning there is no guarantee they will go any lower in the coming months.
Banks were rushing to reduce rates throughout January, but several have now upped rates, with Barclays following NatWest, Santander and Nationwide in increasing costs this Thursday.
The cheapest rates are still around 3.5 per cent, for those with the largest deposits, but the average rate on the market has marginally increased.
This Thursday, the Bank of England (BoE) opted to keep interest rates on hold at 3.75 per cent, and many forecasters believe there could only be one further cut to rates this year.
Mortgage prices tend to be based on swap rates, which follow long-term predictions for where BoE interest rates could go in the future.
A forecast for just one cut this year means swap rates have been rising in recent days, which is limiting the chance of further mortgage price cuts.
So what does this mean if you have a mortgage decision to make in 2026? The i Paper spoke to experts to find out.
What could happen to mortgage rates?
Last year, some experts predicted mortgage rates could drop to around 3 per cent by Spring, but these predictions are now looking less likely.
Peter Stimson, head of mortgages at lender MPowered, explained that customers should not assume prices will drop.
“I think there is a real risk people get lulled into a false sense of security, particularly around where rates go next. There is only one more [Bank of England] rate cut priced in, so absolutely no certainty rates go any lower,” he said.
Some experts believe there is a chance that rates do drop, but that reductions will be small.
“In the near term, it would be sensible to expect smaller, more incremental moves rather than significant reductions over the next few weeks,” said Nick Mendes, mortgage technical manager at John Charcol.
What to do if you’re remortgaging
If you have a mortgage deal expiring in the next few months, it is essential to start looking for a new price early.
“If your fixed rate ends in the next six months, it is worth reviewing your options now rather than later. Many lenders allow borrowers to secure a new deal well ahead of time,” says Mendes.
You can then keep the application under review so you can move quickly to a new rate if pricing improves in the meantime.
It can be difficult to decide which type of deal to get. You can either fix your deal for two or five years, or consider a tracker.
Fixing ensures your price stays the same for the length of the fix, but you cannot leave your deal if rates fall without a penalty.
Trackers go down as the BoE base rate falls, and many allow you to leave penalty-free.
Brokers say that at the moment, they may not be a good option, though.
Lewis Shaw, a broker at Shaw Financial Services, explains that it is generally only worth getting one if you expect a sudden drop in interest rates.
“The trackers are built with an extra margin in them, so wouldn’t make sense unless someone was betting on rates dropping by 1.5 per cent or more overnight,” he said.
Two-year fixes are marginally cheaper than five-year fixes – around 0.1 percentage points according to the Moneyfacts average mortgage deal.
Stimson says the exact pricing is not the only factor to consider, though. A five-year rate guarantees your price for longer.
“Whilst two-year mortgages may be cheaper now, will they be in two years’ time when customers have to re-fix again? It could well be a false economy to take a two-year now that is slightly cheaper, only to find yourself paying possibly more in two years’ time,” he explains.
He says mortgage rates may well rise over the next few years, so taking a two-year deal is essentially a risk.
“The choice is basically two years cheaper now versus paying more for a five-year but not risking that re-fix in two years,” he says.
What to do if you’re buying a home
If you are buying later this year and need a mortgage, experts almost always say it is not worth trying to time your purchase with mortgage rates being at their lowest.
Stimson says: “The best advice is to get the most suitable product at the point you are ready to apply for your mortgage. If rates fall in advance of completion, the good news is that you can ask your mortgage lender to swap onto one of the new lower rates your lender has.
“The equally good news is that should rates rise, you can stick with the deal you have – it’s a win-win for the customer.”
