Falling rates would be good news for remortgagers, but experts caution reductions are not guaranteed
The cheapest mortgage rates on the market could reach 3.5 per cent or lower next year, according to experts.
The lowest rates on the market at the moment are currently between 3.7 and 3.8 per cent, and go to households who have big deposits or equity in their home.
Brokers believe that if the Bank of England continues to lower its base rate as predicted, rates could continue to drop later this year and in 2026.
A cut is expected next week to 4 per cent when the Bank’s Monetary Policy Committee (MPC) meet.
A drop to mortgage rates is good news for millions of households who are looking to remortgage over the next few years and would also provide some relief to the Government, which made ensuring people “have more money in their pocket” – a key campaign pledge in 2024’s general election.
But experts caution that nothing is guaranteed and that further unforeseen global issues could stop mortgage rates from falling, and see them rise further.
Michelle Lawson, a mortgage broker at Lawson Financial said: “I think we will start to see things in the mid to low 3 per cents before the end of the year.”
However, she warned that “an element of market uncertainty still exists”.
Lisa Parker of brokers L&C Mortgages said a 25 basis point cut to the base rate in both August and November “would align with the fairly cautious tone coming from the Bank of England and would be consistent with reaching 3.5 per cent at the start of next year, potentially in February.”
She added: “There is scope for rates to move faster or further if inflation and employment data weaken.
“[Donald] Trump’s latest tariff squeezes could start to raise concerns about the global outlook once again. Aside from pending UK and EU trade deals, this broader uncertainty could be enough to apply a gentle brake on growth.”
David Stirling, a director at Mint Mortgages and Protection said he thought the cheapest mortgages could reach the 3 to 3.5 per cent range in the next 12 months.
But he added: “This is assuming no massive world upsets from tariffs, inflation, war, plague or pestilence, which have dogged rates ever since Covid.”
Nick Mendes of John Charcol brokers added: “My prediction at the start of the year were for the best-buy rates to come close to 3.5 per cent [this year] and for the moment I am still sticking to that notion.”
He said rates would plateau after reaching this stage.
The lowest mortgage rates on the market are generally offered to those with 40 per cent deposits or equity in their home – which is known as having a low loan-to-value.
For those with small deposits or equity, the rates available tend to be a little higher.
Mr Stirling said that for those with 25 per cent deposits, the rates could drop to around 3.5 to 3.7 per cent.
The length of time you fix your mortgage for can also influence the rate you are offered, with two-year fixes generally cheaper than five-year deals at the moment.
The cheapest widely available deal at the moment on a two-year fix, is a 3.73 per cent rate from Santander.
For someone borrowing £300,000 on a 25-year term, this would currently cost £1,538 a month. At 3.5 per cent, they would save £36 a month and pay £1,502.
Nationwide also offers a 3.74 per cent rate for a two-year deal for those buying a home or looking to remortgage.
However, the average rates are much higher. Both the average two and five-year fix are 5.01 per cent, according to Moneyfacts.
How mortgage rates work
Fixed mortgage rates tend to follow swap rates, which are based on long term predictions for where the Bank of England base rate will go in the future.
If financial markets begin to expect faster rate cuts, mortgage rates can come down, but slower cuts can mean rates rise.
At the moment, it is expected that the Bank of England will cut interest rates next week, and potentially again this year.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK said: “It’s a solid bet that the Bank of England will cut interest rates by 25 basis points to 4 per cent at its meeting on Thursday. However, the outlook after next week’s meeting becomes much cloudier.
“We still expect another cut towards the end of the year, but that will largely depend on whether the recent weakness in the labour market turns out to be a trend or a blip.”
Higher-than-expected inflation figures can delay Bank of England interest rate cuts as the Bank has a mandate to try and ensure inflation is at a target level of 2 per cent.