Introduction
The cost of borrowing through a mortgage is one of the most consequential financial decisions many UK households make. As we enter the mid-2020s, the mortgage market is being reshaped by a complex mix of economic, monetary, and housing-market forces. For prospective borrowers and homeowners looking to remortgage, understanding the forecast for mortgage rates in 2025–2026 is more important than ever.
This article explores the outlook for UK mortgage rates over the next one to two years, examining key drivers, likely scenarios, and what that could mean for affordability. We analyze:
- The macroeconomic backdrop
- The Bank of England’s base rate outlook
- Mortgage-specific drivers (swap rates, lender behavior)
- Forecast scenarios and rate ranges
- Implications for borrowers (first-time buyers, remortgagers)
- Risks and uncertainties
- Strategic advice for navigating the market
1. Macroeconomic Backdrop: What’s Driving Rates?
Tightrope Between Inflation and Growth
One of the central tensions in the UK economy right now is between inflation pressures and the need to support growth. After years of volatility, inflation has begun to moderate, but it remains a key factor shaping monetary policy. According to the Institute of Mortgage & Law (IMLA), inflation (CPI) is forecast to be around 2.4% in Q4 2025 and 2.6% in Q4 2026, signaling a return toward more normal levels. IMLA
At the same time, real wages are projected to grow: IMLA’s forecasts suggest earnings growth of 3.5% in 2025 and 3.0% in 2026 (on a Q4 basis), meaning real incomes could rebound once inflation eases. IMLA
This balance is critical. If inflation stays sticky, the Bank of England may be forced to keep interest rates higher for longer, weighing on mortgage affordability. But if inflation continues to fall and wages pick up, there could be room for rate cuts, which would ease borrowing costs.
Economic Growth & Activity
According to IMLA, UK real GDP is expected to rise in 2025 and 2026, with projected growth of 1.5% in 2025 and 2.0% in 2026. IMLA This stronger growth forecast is underpinned by consumer spending, real earnings, and government investment.
On the housing front, IMLA predicts housing transactions will increase (i.e., more buying activity), and average house prices will continue climbing: their model forecasts an average house price of around £298,000 in 2025 and £310,000 in 2026. IMLA
Meanwhile, labor market dynamics are expected to remain relatively stable, with IMLA forecasting the unemployment rate at 4.6% in Q4 2025, falling back to 3.8% in Q4 2026. IMLA
All this suggests that the broader economic environment could support a mild easing of borrowing costs, though not without trade-offs for inflation.
2. Bank of England Base Rate Outlook
Recent Moves & Current Position
As of mid-2025, the Bank of England’s base rate (Bank Rate) has been cut from a peak of 4.5% to 4.25%. The Guardian More recently, some commentators and brokers argue that the Bank could hold the rate at 4.00% for some time. Mortgage Professional America Indeed, Rightmove reports that as of November 2025, base rate is at 4%, and markets expect a potential 0.25% cut at the next Monetary Policy Committee (MPC) meeting. Rightmove
Forecasts and Broker Sentiment
A survey of 300 mortgage brokers (commissioned by Butterfield Mortgages) found that 69% expect the base rate to be higher than the current level by the start of 2026, with 28% predicting a rise to 5.25%. DJS Research This may sound contradictory – while some see further cuts, others still worry about upside risks.
On the other hand, IMLA’s economic forecast projects a base rate of 4.25% at end-2025, falling to 4.00% by Q4 2026. IMLA
These mixed views reflect deep uncertainty: markets are trying to price in not just inflation and growth, but also potential shocks (e.g., geopolitical risk, fiscal surprises).
3. Mortgage-Specific Drivers: From Swap Rates to Lender Behavior
Swap Rates & Fixed Mortgages
Fixed-rate mortgages in the UK are not dictated solely by the Bank Rate — rather, a key input is swap rates, which are market rates used by lenders as a reference for pricing fixed deals. Lower swap rates tend to lead to cheaper fixed mortgage offers.
Mortgageable reports that the fall in swap rates is one of the main drivers pushing down fixed mortgage rates. Mortgageable Even as the base rate moves modestly, swap markets can adjust more dynamically, offering lenders the opportunity to pass on savings.
Lender Competition
Competition among lenders has intensified. According to a 2025 market overview, the very cheapest 2-year fixed mortgages (for borrowers with large deposits) are hovering around 3.7–3.8%, and 5-year fixes are around 3.8–3.9% in top-tier deals. The Guardian
Major lenders have responded to falling swap rates by cutting rates: for example, Barclays, Nationwide, Skipton, and TSB have introduced deals under 4% for some customer segments. The Scottish Sun
Remortgaging Dynamics
UK Finance forecasts that remortgaging activity will pick up in 2025, as affordability improves. Their projection: gross external remortgaging (i.e., switching to a different lender) is expected to rise from £59 billion in 2024 to £76 billion in 2025, and internal product transfers (staying with the same lender) may increase as well. UK Finance
This flow could force more lender competition, as banks and building societies fight to retain or attract borrowers.
4. Forecast Scenarios: What Might Happen to Mortgage Rates by 2026
Putting together macro forecasts, base-rate projections, swap rate trends, and lender behavior, we can outline several plausible scenarios for UK mortgage rates in 2025–2026.
Scenario A: Gradual Rate Cuts — Base Case
- Base Rate: Falls modestly from ~4.25% to ~4.00% by late 2026. (Per IMLA forecast.) IMLA
- Fixed Mortgage Rates:
- 2-year fix: Moves down toward 3.5%–3.8%.
- 5-year fix: Could fall to around 3.6%–4.0%.
- Tracker Mortgages: Payments for base-rate tracker customers fall in line with base rate cuts.
- Remortgaging: Becomes more attractive; higher volumes as borrowers seek to lock in cheaper deals.
This scenario assumes inflation continues to ease, the labor market remains stable, and no major external shock (e.g., global financial crisis or sharp gilt sell-off).
Scenario B: Faster Rate Cuts (“Dovish Pivot”)
- Base Rate: Cuts accelerate; markets price in multiple cuts, potentially down toward 3.5% by mid-2026. Some analysts and brokers suggest this is possible. YesCanDo Money+1
- Fixed Mortgage Rates:
- 2-year fix: Could drop close to or below 3.5% for some borrowers with strong profiles.
- 5-year fix: May trend toward 3.5%–3.7% in competitive deals.
- Tracker Mortgages: Significant relief for tracker borrowers; monthly payments fall visibly.
- Remortgaging & New Lending: Surge in remortgaging as more borrowers lock in long-term cheaper rates; first-time buyer demand could pick up strongly.
This scenario hinges on inflation behaving well, wage growth persisting, and the BoE being comfortable with cutting rates more aggressively.
Scenario C: Sticky Inflation, Rate Plateau (“Higher for Longer”)
- Base Rate: Holds around 4.25%–4.50%, if inflation proves more persistent or there’s an adverse economic shock.
- Fixed Mortgage Rates:
- 2-year fix: Might remain in the 3.8%–4.5% range, depending on swap rate volatility.
- 5-year fix: Could remain elevated, potentially 4.0%–4.8% for riskier LTV profiles.
- Tracker Mortgages: Limited relief; if base rate does not drop, tracker payments may stay flat or even go up.
- Remortgaging: More cautious; fewer borrowers switch, preferring to wait for a clearer rate-cut cycle.
This scenario reflects the risk that the BoE remains cautious, especially if inflation surprises to the upside or external pressures mount.
5. Implications for Borrowers
Given these scenarios, how will different types of borrowers be impacted? Here are some likely outcomes and strategic considerations.
First-Time Buyers
- Affordability: If rates fall as in Scenarios A or B, monthly payments could drop substantially for first-time buyers, making homeownership more accessible. Lower rates + rising real wages = improved affordability.
- Buying Power: Lower mortgage rates translate to higher borrowing power (for the same monthly cost), meaning first-timers might afford more expensive homes, or need a smaller deposit proportionally.
- Strategy: First-time buyers should monitor rate markets closely. Locking in a 2-year fix might make sense if cuts are expected but are not certain. Alternatively, waiting for lower rates could pay off — though timing risk remains.
Remortgagers
- Opportunity Window: If lenders continue to compete and fixed rates drop, 2025–2026 could be an ideal window for remortgaging.
- Deal Types: Long-term fixes (5 years or more) could be particularly attractive if cuts are coming, locking in lower rates ahead of potential base rate volatility.
- Switch Just Before Deal Ends: Borrowers whose fixed deals expire might benefit by timing remortgages to coincide with favorable rate drops.
Existing Borrowers (Trackers & SVRs)
- Trackers: These borrowers stand to benefit most immediately from base rate cuts — every cut by the BoE could translate to lower monthly payments.
- Standard Variable Rate (SVR): SVR borrowers may or may not benefit, depending on how lenders adjust SVRs in response to base rate changes and swap rates.
6. Risks & Uncertainties
While the outlook offers some optimism, there are meaningful risks and uncertainties that could derail favorable mortgage rate scenarios.
Inflation Surprises
If inflation doesn’t continue to moderate, the BoE might delay rate cuts or even raise rates again. Sticky energy prices, supply-chain shocks, or geopolitical tensions could all fuel inflationary pressures.
End of Fixed Deals Wave
Many fixed-rate mortgages signed in recent years will mature in 2025–2026. The repricing risk is real: if borrowers come off historically low fixed rates into higher rate environments, affordability could tighten, pressuring household finances.
Swap Rate Volatility
Fixed mortgage rates are tightly linked to swap rates. If swap rates rise (due to market stress, gilt yield spikes, or monetary tightening elsewhere), fixed mortgage offers could become more expensive.
Economic Downturn
While growth is forecast, there is always the risk of an economic slowdown, particularly if fiscal policy tightens, consumer spending weakens, or global shocks emerge. A downturn could weigh on housing demand, lender profitability, and mortgage dynamics.
Policy & Regulatory Risk
Changes in housing policy, tax rules, or lending regulations could alter the mortgage landscape. For example, stricter affordability checks, changes to capital requirements for lenders, or shifts in macroprudential policy could limit lending flexibility.
7. Strategic Advice for Homeowners and Borrowers
Given the mixed but potentially favorable outlook for mortgage rates, here are some practical steps for different types of borrowers:
- Stay informed: Track BoE decisions, swap rate trends, and lender mortgage deals. Use trusted mortgage comparison tools and broker insights.
- Consider locking in: If you believe rate cuts will arrive but not drastically, securing a competitive 2- or 5-year fix now might be wise, especially if your current deal is expiring soon.
- Use a broker: Mortgage brokers can provide access to exclusive deals and help you navigate rate forecasts, LTV tiers, and fees.
- Monitor remortgage timing: For those nearing the end of a deal, align your remortgage with anticipated rate cuts or product cycles.
- Build flexibility: If your financial situation allows, consider overpaying when possible or shortening your mortgage term — this gives you more options when rates change.
- Budget conservatively: Even if rates fall, maintain a contingency buffer in your budget in case they rise again or other costs increase.
Conclusion
So, will borrowing become more affordable in the UK in 2025–2026? The short answer is: yes — but not without caveats.
- There is a solid case for modest base rate cuts, which could gradually ease borrowing costs.
- Fixed mortgage rates are already under downward pressure, thanks to lower swap rates and strong lender competition.
- For many borrowers (especially trackers and remortgagers), 2025–2026 offers a potentially attractive window to lock in cheaper deals.
- However, risks remain: inflation could surprise to the upside, swap rates could re-widen, and borrower behavior around remortgaging could introduce volatility.
The affordability story is cautiously optimistic, but it is not guaranteed. Borrowers should stay alert, plan their moves strategically, and be ready to act — because in a changing rate environment, timing and flexibility will matter more than ever.