Bank of England Rate Cuts Expected to Lead to Gradual Decline in Mortgage Rates by 2026
The Bank of England (BoE) base rate is expected to be cut from 4% to 3.75%, a 0.25 percentage point reduction, with some forecasts predicting a further cut to 3.5%. Experts anticipate a gradual decrease in mortgage rates, potentially reaching lows around 3% by the end of 2026 rather than a sharp drop. This projection aligns with expectations that mortgage rates will follow the trend of the BoE base rate and swap rates, as well as market competition.
Currently, two-year fixed mortgage rates start at approximately 3.51%, with a rise in lenders offering fixed deals near 3.5% expected in the coming months. Some analysts predict that fixed-rate deals near 3.5% could become common by mid-2026, while others suggest that near-term fixed rates will range between 3.85% and 4.35%. Locking in a five-year fixed rate is advised for certainty, with lenders such as Santander, Nationwide, and NatWest mentioned as options.
The Bank of England’s neutral rate is considered to be around 3.5%, which many view as the new normal for the base rate. Mortgage rate declines in 2026 are expected to be modest unless inflation stays on target, in which case high-2% rates may be possible. Recent market reactions include a 0.6% fall in the pound to just above $1.33, a decline of approximately 7 basis points in 10-year gilt yields, November inflation recorded at 3.2%, rising unemployment, and two consecutive months of economic contraction.
