Mortgage borrowers across Britain have been given a Christmas boost after the Bank of England cut interest rates to a nearly three-year low.
The Bank’s Monetary Policy Committee reduced the Bank Rate from 4pc to 3.75pc on Thursday – its fourth cut this year – meaning borrowing costs have sunk to their lowest level since February 2023.
Cheaper deals have already started to hit the market, as lenders are pricing Thursday’s decision into their current deals – as well as one or two further cuts expected next year. But will deals get cheaper? Telegraph Money asked mortgage experts for their predictions for 2026.
The average two-year fixed mortgage deal is 4.82pc, according to the analyst Moneyfacts, while the average five-year deal is at 4.9pc.
It’s possible to find much cheaper deals than this, of course. For those with equity of at least 40pc, Lloyds Bank is offering a two-year deal at 3.47pc, while Santander’s cheapest two-year rate is 3.55pc.
Swap rates, the main pricing mechanism for fixed mortgages, have fallen in recent months. The average mortgage rate for a two-year fixed deal is now 4.87pc (down from a peak of 6.6pc in October 2022) and just under 5pc for a five-year fixed. These prices are expected to fall further next year.
Tracker rates – which average 4.66pc for a two-year deal at the time of writing – have not dipped below 4pc since early 2023 but will likely see a drop thanks to Thursday’s rate cut. For instance, Halifax is now offering a two-year tracker mortgage at a rate of 3.86pc.
The 1.8 million people who are set to remortgage next year, according to figures from UK Finance, will be keen to know whether mortgage rates will continue to fall.
Lucian Cook, of estate agency Savills, said: “The expectation from here is that we’ll see a gradual fall in the price of fixed-rate mortgages, particularly two-year fixed rates.
“But all lenders are going to be paying attention to Bank of England sentiment, and the path of inflation and the labour market in terms of wage growth – all of those will be critical.”
One factor in borrowers’ favour is that lenders will be vying for business.
David Hollingworth, of London & Country Mortgages, said: “It’s a fierce market, lenders are competing hard. Today’s cuts will have been priced in, and some of the expected cuts next year have too, but we could still see a pretty heated market in terms of competitive pricing next year, and we will probably see mortgage rates drifting down.
“There are still questions about how many cuts and when they will come, and that will dictate mortgage rates. But overall, it’s good news for borrowers.”
Adam French, of Moneyfacts, said he expected the Bank Rate to stabilise at 3.5pc in 2026, adding: “Historically, we’ve seen the average mortgage rates track at 0.8pc above the Bank Rate. So this suggests mortgage rates will sit between 4.3pc and 4.5pc next year.
“Obviously, there will be deals available for much less than that for those with low loan-to-value ratios and good credit scores.
“These could be 3pc, and maybe even less, but will be very dependent on the movement of the Bank Rate. The massive caveat is that inflation doesn’t prove too sticky.”
Adrian Anderson, of mortgage broker Anderson Harris, is slightly more cautious. He believes that competitively priced mortgage deals currently on offer are unlikely to reduce much further.
He said: “We’ll probably see a very slow, gradual reduction in fixed-rate pricing next year. But I don’t think the fixed-rate pricing has a long way to go because the prices we’re seeing today are all based on the expectation of Bank Rate cuts.
“The markets are also quite reactive to economic data – employment figures, inflation – and if the mood in the market changes a bit, then fixed-rate pricing may not go down at all. Fixed rates might even go up.
“But the underlying good news is that if rates do continue to improve, it will help with people’s affordability. And the way banks stress affordability will likely loosen up a bit.”
There are a lot of factors to consider when choosing your next mortgage deal – how much you’re borrowing, whether you like the security of getting the same bill every month, and affordability.
According to Mr Hollingworth, the expectation for a gentle downward slope for interest rates may tempt some borrowers remortgaging in 2026 to decide against a fixed-rate deal.
He added: “Fixed rates are still a bit lower than trackers. But if the tone is that Bank Rate cuts will come next year, tracker rates will follow those reductions, and we may see more customers considering the benefit of the tracker.”
For those who prefer a fixed rate, Mr French said choosing between deals could get easier.
“We’re not expecting dramatic changes [in interest rates], which takes the pressure off the two or five-year choice a bit more,” he said. “The right choice will depend on circumstances, budgeting and level of security you want, rather than looking at that cost.
“Second-time buyers and home movers are more likely to opt for a five-year term, as they tend to want more security, compared with first-time buyers and people remortgaging the same property, who are more likely to go for two years.”