The mortgage market in 2026: Cautious optimism as rates ease

With 1.8 million homeowners set to remortgage in 2026, the odds of getting better rates are rising. Just don’t expect them to crash lower, writes Paul Thomas.

It’s that time of year when the personal finance media all ask the same question: what will happen to mortgage rates this year?

In 2026, that question matters to an unusually large number of people. Over the next 12 months, around 1.8 million borrowers are coming off fixed-rate deals, many refinancing for the first time since rates surged in 2022.

For some, the timing will work in their favour. Those on shorter deals who refinanced after rates rose may see their monthly repayments fall again.

For others, the experience will be far less comfortable. Borrowers who locked in rock-bottom rates during the pandemic are in for a shock. Even though mortgage rates have fallen over the past 12–18 months, today’s rates are still far from the ultra-low deals many households grew accustomed to.

That’s why expectations need to be kept in check. While base rate is 1.5 percentage points lower than its 2024 high, there is less scope for further falls. The consensus is there will be just two more cuts in 2026, bringing base rate down from 3.75% to 3.25%.

Why lower base rate doesn’t always mean cheaper mortgages

But even if the base rate falls again, it won’t automatically translate into cheaper fixed-rate mortgages. That’s because most fixed deals are priced using financial instruments called swaps. And the rates of these swaps essentially reflect where markets expect interest rates to be in two, five or ten years. 

In simple terms, lenders set mortgage rates today based on where they think rates will be in the future, rather than what they are now.

And because they widely expect another two cuts, that is already reflected in the rates you see on offer today. 

However, there’s a but. And that is that the mortgage market is highly competitive at the moment. Lenders are cutting rates frequently to win business, which is leading to lower borrowing costs for homeowners.

It’s also possible that the market is wrong and base rate could fall further than expected. Some forecasters, for example, think it could drop to around 2.75%, although these views are outliers. If that happens, swap rates would adjust downward too, which would lead to cheaper mortgages. 

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Making your next move

For borrowers, this creates an uncomfortable decision: what should they do next?

Those coming off five-year fixes taken out before rates surged may see a noticeable jump in monthly payments. 

However, anyone who took out a two-year fix in 2024 will probably find rates are around 1 percentage point lower now. On a typical £250,000 loan, that’s a saving of roughly £148 a month.

When rates were rising in 2022, the answer for many people was simple: fix for longer to protect against further increases.

When rates are easing, the choice is trickier. Some borrowers may take a short fix in the hope rates fall further. Others may lock in for longer for certainty. Some may opt for a tracker that moves with base rate and switch to a fixed rate deal once rates bottom out.

There’s no one-size-fits-all answer. Your choice depends on factors like job security, whether you plan to move soon, and whether you could cope financially if rates don’t fall as expected.

A sensible starting point is to check your options about six months before your current deal ends. 

If your payment history is clean, your lender will usually offer a new deal called a “Product Transfer.” These are straightforward because there’s no credit check and you don’t need to resubmit bank statements – your lender already knows you. They also tend to have lower fees.

The drawback is that better deals may exist elsewhere. These deals are also pretty inflexible. For example, you can’t borrow additional cash for home improvements or to clear other debts. If you want to do that, you’ll usually need to switch lender or take a second-charge loan, which tends to be more expensive.

These decisions can be complex, so it’s worth consulting an independent mortgage broker. They can help you plan based on your circumstances and search the market for the best deal. If you don’t have one already, websites such as Unbiased allow you to find regulated advisers near you.

Long-term rate expectations

Whatever you decide, it’s important to be realistic. Rates aren’t returning to five-year lows. More realistically, they’ll probably hover between 3% and 4% for the foreseeable future.

That’s higher than the ultra-low deals of the post-pandemic era, but much lower than the peaks of 2022–2024. 

Now, lenders such as Nationwide and First Direct are offering rates around 3.6% or less, whereas not so long ago the best deals were approaching 5%.

So, if you’re one of the 1.8 million borrowers remortgaging in 2026, the message is simple: start early, do your homework, and don’t assume the first deal you’re offered is the best one.

Happy mortgage hunting.