What can mortgage borrowers expect in 2026? – London Wallet

It has been a year of gradual change in the UK financial landscape. Borrowers are benefiting from falling mortgage costs and a wider range of options, though those refinancing from much cheaper deals still face affordability pressures. Meanwhile, savers are seeing real returns eroded, even as inflation shows signs of easing.

With interest rates set to remain above the ultra-low levels of recent years, 2026 could be the year the UK fully adjusts to a higher-rate environment for both borrowing and saving, according to Moneyfacts.

Residential mortgage rates in 2025

+ Residential mortgage rates eased steadily through 2025, with two-year fixes falling from 5.46% to 4.93% and five-year fixes from 5.26% to 4.98%.

+ Standard Variable Rates also declined but remained high, ending the year above 7.25%, reinforcing the incentive to fix rather than stay on an SVR.

+ A typical borrower taking out a fixed rate mortgage at the end of 2025 compared to the start of the year will be £25 per month (£300 per year) better off for every £100k borrowed over 25 years.

+ However, average mortgage rates have not fallen to the same extent as the Bank of England Base Rate, which has fallen by a full percentage point over the last 12 months.

What rates can borrowers and savers expect in 2026?

A Base Rate around 3.5% in 2026 may signal a return to a more “neutral” rate environment but benefits for households may be uneven.  While easing pressure on borrowers, meaningful returns for savers may become more elusive.

Mortgages

+ The Bank of England governor’s comments suggesting that any further cuts next year are more in the balance could lead to more caution from lenders.

+ Mortgage rates have typically tracked around 0.8 percentage points above the Base Rate, suggesting average mortgage rates of 4-4.5% in a 3-3.5% Base Rate environment.

+ If the Moneyfacts Average Mortgage Rate reaches 4.3% in 2026 a typical borrower taking out a fixed rate mortgage will be around £38 per month (£456 per year) better off for every £100k borrowed over 25 years, compared to today.

Adam French of Moneyfacts, said: “If the Bank of England Base Rate settles around 3.5% in 2026, as current forecasts suggest, that may represent a more ‘neutral’ interest rate environment. However, what it means for households is varied.

“Mortgage borrowers may see more tangible savings, but expectations should remain measured. Over the past few years, average mortgage rates have typically sat around 0.8 percentage points above the Base Rate. On that basis, a 3-3.5% Base Rate suggests average mortgage rates settling between 4% and 4.5%, lower than today, but still substantially higher than the ultra-cheap borrowing many households became accustomed to in the 2010s.

“There are signs that uncertainty has eased since the Budget, and markets expect a further Base Rate cut to feed through into mortgage pricing. However, the outlook remains finely balanced. The effects of the budget and disinflationary pressure from China may help contain prices, but global volatility, weak growth and persistent services inflation mean the road ahead may yet have a few more bumps in store.

“The timing is important too. Around 1.8 million fixed-rate mortgages are due to expire in 2026 according to UK Finance, many taken out at historically low rates. As these borrowers refinance, significantly higher repayments will follow, and the adjustment is far from over for many households.”