The Bank of England has delivered a significant boost to homeowners and prospective buyers, cutting its base interest rate to its lowest point in nearly three years.
In a move that signals a shift in the economic landscape, the Monetary Policy Committee voted to reduce the rate to 3.75% on Thursday 18 December 2025. This marks the first time the rate has dipped below 4% since January 2023.
The decision, which passed by a narrow 5-4 vote, was swayed by Governor Andrew Bailey changing his position from the previous meeting. This cut is expected to trigger a wave of cheaper mortgage deals, offering relief to those on variable rates and anyone looking to buy or remortgage.
Expert Predictions for Mortgage Rates in 2026
Industry insiders have told Money that they anticipate mortgage rates could reach lows of 3% by the end of 2026. While lenders do not directly offer the Bank's base rate, they use it as a key benchmark, meaning mortgage costs are poised to follow a downward trend.
Ben Perks, managing director at Orchard Financial Advisers, stated that while the ultra-low rates of the 2010s are gone for good, rates in the 3% region are on the horizon. "Early to mid 3% rates are palatable for most mortgage holders. That's where they should stay for the foreseeable future," he said.
Vijay Rabadiya, founder of brokerage The Mortgage Vine, forecasts that fixed rates between 3.85% and 4.35% will become standard by mid-2026, falling further later in the year. "If the current trajectory holds, I think mid-3% mortgage products will be achievable by late 2026," he commented, adding that a steady downward path is more likely than a sudden crash.
A New Era of Mortgage Stability
Experts agree the market is moving towards a new, stable normal, though opinions vary on how low rates will ultimately go. Justin Moy, managing director at EHF Mortgages, expects lenders to gradually reduce rates to stimulate the housing market. "Most lenders are aiming for 3.5% as the next benchmark," he noted.
Michelle Lawson, director at Lawson Financial, suggested lenders might introduce competitive rates to start the new year with a bang, but significant further drops may be limited. "It is unlikely rates will fall significantly lower but remain steady," she predicted.
Some advisers urge borrowers to adjust their expectations. Shaun Sturgess, director at Sturgess Mortgage Solutions, believes sticky inflation will prevent aggressive cuts. "We are moving from volatility to stability, and 3.5% is the destination," he said, describing this as the new normal.
What Should Borrowers Do Now?
With the lowest two-year fixed rates already starting from 3.51%, borrowers are faced with key decisions. Aaron Strutt, director at Trinity Financial, provided clear guidance for different circumstances.
"If you prefer certainty, have a stable income and plan to stay in your home for several years - locking in a 5-year fix now, especially with a lender like Santander, Nationwide or NatWest - seems a solid choice," Strutt advised.
He added that for those who are more flexible, expect rates to fall further, or might move home in the near future, a two or three-year fixed deal remains a good option. The overall consensus is that the era of near-zero interest is over, but a new period of relatively affordable mortgage rates is beginning.
