Market News

UK mortgage rates are unlikely to fall much further even if the Bank of England delivers additional interest rate cuts, as markets have already priced in expectations that Bank Rate will bottom out close to its long-term floor, property experts warn.

The average rate for a two-year fixed mortgage came in at 4.48% this week, according to data from Uswitch. The average five-year fixed deal was at 5.04%. Those are the average rates across all lenders for a 75% loan-to-value (LTV) mortgage, meaning buyers need to have at least 25% of the purchase price as a down payment.

The BoE cut interest rates to 3.75% from 4% last month, taking borrowing costs to their lowest level in almost three years.

Markets expect the Bank of England’s policy rate to fall further but much of that outlook has already been reflected in mortgage pricing, analysts say.

Nicholas Mendes, mortgage technical manager at Charcol, said: “Markets broadly expect Bank Rate to bottom out between 3% and 3.25%, likely requiring at least two further quarter-point cuts this year. However, much of that outlook is already priced into fixed-rate mortgages.”

“The cheapest two- and five-year fixes remain below Bank Rate, reflecting expectations of further cuts. As a result, fixed mortgage rates are likely to fall by less than Bank Rate from here, and by the end of 2026 could once again be priced above Bank Rate as markets judge rates to be close to their long-term floor," he added.

“This explains why lenders tend not to react dramatically to individual base rate decisions. Mortgage pricing is driven far more by expectations for where rates settle over the medium term than by short-term policy moves."

“For households, 2026 will still be a year of adjustment. Around 1.8 million of borrowers are due to refinance. Those coming off two-year fixes taken in 2024 should see some improvement, while borrowers rolling off five-year deals agreed when rates were near historic lows will still face higher repayments, even after recent cuts.”

About 1.8 million homeowners are expected to refinance mortgages this year, many of them coming off ultra low fixed deals secured before interest rates began rising at the end of 2021.

Mendes added: “Competition between lenders remains intense, which should limit how far rates can rise, but the scope for sharp further falls looks limited unless markets become convinced Bank Rate will settle closer to 3%.

“Beyond rates, there are early signs of stabilisation in the housing market. Real house prices fell in 2025, but easing mortgage rates, softer affordability stress tests, and continued criteria improvements, particularly for first-time buyers, point to modest growth in 2026, with significant regional variation and flats continuing to lag behind houses.”