HSBC has opened 2026 by becoming the first major lender to make a decisive move on mortgage pricing, unveiling a round of notable rate cuts that many in the market had been anticipating. The changes signal growing confidence that borrowing costs are on a downward trajectory and are likely to intensify competition among lenders in the weeks ahead.
The banking group, which is one of the UK’s largest mortgage lenders, has cut rates across a range of residential and landlord buy-to-let mortgage products. The new rates come into effect on Monday.
For borrowers and brokers alike, HSBC’s move sets an early tone for the year – and follows a reduction in the Bank of England base rate in December to 3.75%. Mortgage brokers said it was good new year news for borrowers as rivals were likely to follow suit.
“While this [rate cuts] will be welcomed by borrowers, it’s worth keeping expectations in check,” said Nicholas Mendes, mortgage technical manager at Charcol. “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.
“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 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.
Around 1.8 million homeowners are expected to refinance mortgages this year, with many coming off super-low, fixed-rate deals secured before interest rates began rising at the end of 2021.
Last week the financial data firm Moneyfacts said the average rate on a two-year fixed residential mortgage was running at 4.83%. The average two-year, buy-to-let residential mortgage rate stood at 4.7%.
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.”
