Will mortgage rates fall in 2026?

Falling inflation is reshaping expectations for mortgage rates

After several years of sharply rising borrowing costs, the outlook for UK interest rates is beginning to shift. The latest inflation data from the ONS and the government’s updated forecasts suggest that conditions are slowly moving toward a period where lower mortgage rates could become possible. For homeowners coming to the end of fixed-rate deals, these shifts matter.

Why 2026 could mark the start of lower mortgage rates for the UK

• Inflation has fallen significantly, with CPI at 2.3 percent in October 2025, close to the Bank of England’s 2 percent target
• HM Treasury’s latest forecast indicates inflation is expected to remain within or close to target through 2026
• The Bank of England has reiterated it will only cut rates once inflation is “sustainably” low
• Forward interest rate markets have already begun pricing in reductions, prompting lenders to lower some fixed-rate products

The Bank of England’s position on future rate cuts

The Bank of England states that it changes interest rates to meet the 2 percent inflation target and support economic stability. It explains that decisions depend on “what’s happening in the economy and what we think is likely to happen”, with rate changes used to bring inflation back to target over time.

This means the Bank will only reduce rates when it is confident inflation is returning sustainably to the 2 percent goal. That approach continues to shape expectations for 2026.

According to the ONS, annual CPI inflation fell to 2.3 percent in October 2025, down from more than 4 percent earlier in the year. This progress supports the case for lower rates, although the exact timing depends on ongoing economic conditions and Bank of England assessments.

What lower interest rates might mean for mortgages in 2026

• Tracker mortgage holders may see monthly payments fall when Bank Rate is reduced
• Fixed-rate mortgages may become cheaper as lenders adjust their pricing earlier
• Remortgaging homeowners could face less severe payment shocks than in recent years
• First-time buyers could see improved affordability if rates continue downward

How mortgage costs respond to changes in Bank Rate

Mortgage pricing is influenced by expectations rather than only current interest rates. This is why some fixed-rate deals have already fallen. A sustained decline in inflation supported by stable economic forecasts can reduce funding costs for lenders, which often leads to cheaper fixed rates months before the Bank Rate officially drops.

Tracker mortgages, which follow the Bank Rate directly, will only change after a confirmed cut. For anyone currently on a high-rate tracker, a gradual return to lower interest levels in 2026 could offer meaningful relief.

How lower interest rates affect mortgage rates

When the Bank of England lowers the Bank Rate, it becomes cheaper for banks and lenders to borrow money. This reduces their funding costs, which often leads them to lower the mortgage rates they offer to customers.

Lower interest rates usually mean:

• Tracker mortgages fall immediately, because they move directly in line with the Bank Rate.
• Standard variable rates may fall, although this depends on each lender’s decision.
• Fixed-rate mortgages often fall in advance, because lenders price them based on market expectations of future Bank Rate movements.

Reasons mortgage rates may remain higher for longer

• The ONS notes core inflation remains above headline CPI, suggesting persistent price pressures
• HM Treasury’s November forecast warns that inflation risks remain and could rise again if energy markets tighten
• Wage growth continues to influence service-sector inflation
• The Bank of England may lower rates very gradually to avoid inflation rebounding

Why early optimism should be balanced with caution

Even with encouraging inflation progress, the Bank’s cautious tone has not changed. In its recent guidance, the Bank has emphasised the need to avoid repeating past mistakes where inflation fell temporarily before climbing again.

HM Treasury’s November 2025 forecast also notes that although inflation should remain near target through 2026, risks from global commodity prices or supply chain pressures could slow the rate-cutting cycle.

For these reasons, homeowners should not assume a rapid or steep fall in mortgage rates.

How different mortgage types will be affected in 2026

• Tracker mortgages will adjust only when Bank Rate officially changes
• Standard variable rates may fall but depend entirely on the lender
• Fixed-rate mortgage pricing reacts primarily to market expectations
• Long-term fixed deals may gain popularity if stability returns

Understanding how your mortgage reacts

Trackers move in step with the Bank Rate, so any reduction immediately lowers payments. Standard variable rates might also fall, but lenders are not obliged to pass reductions on.

Fixed-rate deals depend on swap rates, which are influenced by the long-term interest rate outlook. That means fixed rates often fall before Bank Rate does, especially when inflation is easing and forecasts show economic stability.

For homeowners planning a 2026 remortgage, this dynamic matters. It could mean access to lower fixed rates months before the first official cut.

How to prepare for a remortgage in 2026

• Review when your mortgage deal ends and plan six to twelve months ahead
• Compare potential fixed and tracker deals based on your appetite for risk
• Watch Bank of England commentary to understand how conditions are evolving
• Stress test your budget against scenarios where rates fall more slowly

Planning ahead reduces uncertainty

If your mortgage expires in 2026, preparing early helps you secure a competitive rate at the right time. Some homeowners may prefer the certainty of a fixed rate as prices fall, while others may choose a tracker if they believe more cuts are on the way.

Given the uncertain pace of future rate movements, reviewing several scenarios and speaking to a qualified adviser can provide clarity.

What lower mortgage rates could mean for housing affordability

• Cheaper mortgages can improve buyer affordability
• Housing market confidence may recover as borrowing costs stabilise
• Households may find monthly payments more manageable
• If rate cuts are slow, affordability challenges may persist

The wider housing market outlook

Lower interest rates generally support the housing market by reducing borrowing costs. The combination of easing inflation, stabilising economic conditions and more competitive mortgage deals may help restore confidence through 2026.

However, affordability depends not only on rates but on wages, lender criteria and house prices. A gradual shift to lower rates may help, but improvements may be steady rather than sudden.

Conclusion

The UK is moving toward conditions that support lower interest rates, but the path will likely be cautious and gradual. Inflation has fallen sharply, and forecasts indicate continued stability, but the Bank of England remains committed to avoiding a premature rate cut.

For homeowners, 2026 looks more positive than recent years, particularly for those remortgaging. Falling inflation, improving forecasts and more competitive mortgage pricing are encouraging signs. Yet planning ahead remains essential because the pace and timing of rate reductions still depend on economic data.