Mortgage rates have slowly ticked down this year, and rate momentum is expected to continue in 2026, but there will not be a return to an ultra-low mortgage rate environment.
The latest Moneyfacts figures show that residential mortgage rates have eased steadily in 2025, with two-year fixed rates going from 5.46% to 4.93% and five-year fixed rates declining from 5.26% to 4.98%.
Standard variable rates (SVRs) have ended the year at around 7.25%, which reinforces the “incentive to fix”.
A borrower taking out a fixed rate mortgage at the end of 2025 compared to the start of the year will be £25 per month better off for every £100,000 borrowed over 25 years.
The base rate has fallen by 1% over the last 12 months, so mortgages have not fallen to the same extent.
Moneyfacts said a base rate of 3.5% could “signal a return to a more ‘neutral’ rate environment, but benefits for households may be uneven”.
The firm said the Bank of England governor has said any further base rate cuts next year are “more in balance [and] could lead to more caution from lenders”.
Mortgage rates are usually around 0.8% above the base rate, so average mortgage rates could come to around 4-4.5% in a 3-3.5% base rate environment.
Adam French, head of news at Moneyfactscompare.co.uk, said: “If the Bank of England base rate settles around 3.5% in 2026, as current forecasts suggest, that may represent a more ‘neutral’ interest rate environment. However, what it means for households is varied.
“Mortgage borrowers may see more tangible savings, but expectations should remain measured. Over the past few years, average mortgage rates have typically sat around 0.8 percentage points above the base rate. On that basis, a 3-3.5% base rate suggests average mortgage rates settling between 4% and 4.5%, lower than today, but still substantially higher than the ultra-cheap borrowing many households became accustomed to in the 2010s.”
He continued: “There are signs that uncertainty has eased since the Budget, and markets expect a further base rate cut to feed through into mortgage pricing. However, the outlook remains finely balanced. The effects of the Budget and disinflationary pressure from China may help contain prices, but global volatility, weak growth and persistent services inflation mean the road ahead may yet have a few more bumps in store.
“The timing is important, too. Around 1.8 million fixed rate mortgages are due to expire in 2026, according to UK Finance, many taken out at historically low rates. As these borrowers refinance, significantly higher repayments will follow, and the adjustment is far from over for many households.”
