Swap rates, rather than the frozen base rate, are what UK mortgage lenders are pricing their deals on, catching out contractors who don’t expect 5% — unless their borrower profile is pristine.
Contractors’ mortgage expectations are currently unrealistic when remortgaging or first-time buying, even if they expected the Bank of England’s hold of interest rates at 3.75%.
The markets, too, foresaw the ‘hold’ decision, as they priced it in before the BoE made it on April 30th, explaining the “muted reaction” to it, says Hargreaves Lansdown’s Emma Wall.
When is the next UK interest rate decision meeting?
But asked by ContractorUK for their reaction ahead of the BoE’s next interest rate-setting decision (June 18th), three mortgage experts signalled that contractors aren’t always comparing apples with apples.
Freelancer Financials says it is detecting “confusion” among contractors “behind the base rate,” in the wake of mortgage lenders offering them interest rates “nowhere near 3.75%.”
Broadbench, another specialist broker, says that while the BoE’s third hold decision in a row “brings short-term certainty for contractors,” mortgage rates are “elevated versus recent years.”
And Cleerly, a third mortgage broker, said despite a freeze giving “surface-level impressions of stability,” a ‘hold’ must not be mistaken for a ‘halt’ in underlying lending costs shifting.
How many mortgage products have been withdrawn since March 2026?
A big shift in underlying lending costs has already seen the withdrawal of hundreds of mortgage products, largely since March 2026, on the back of the US-Israel war with Iran.
At the time, mortgage expert John Yerou, of Freelancer Financials, outlined three scenarios that he advised any contractor seeking a new or existing mortgage should keep in mind.
Yerou cautioned that the “worst-case” of the three scenarios (from Oxford Economics) sees interest rate rises, at the same time that two-year fixed-rate mortgages could surge to 6%.
How has the BoE described potential interest rate rises in 2026?
At the Monetary Policy Committee’s April 30th meeting, which was held just as inflation moved to 3.3% versus its 2% target, the BoE warned of “forceful” rises to rates later in 2026.
To inform its decision to hold the base rate at 3.75%, the bank also created three scenarios of its own, ‘A,’ ‘B,’ and ‘C.’
The ‘worst-case’ of the BoE’s scenarios (‘C’) sees inflation peak at 6.2% in the first quarter of 2027, with the base rate rising to around 5.25% at the start of next year.
What is the prediction for UK interest rates?
While that indicates up to six base rate increases between now and early 2027, BoE governor Andrew Bailey reportedly gives more credit to inflation of 3.7% at 2026’s end (‘B’).
Reflecting on the minutes from the April 30th meeting, Hargreaves Lansdown’s Emma Wall says the expectation as of Q2 2026 is that interest rates will rise later this year.
What are inflationary fears driving?
“These swings [in interest rate-increase predictions] are understandable — the price of oil is dominating asset pricing and fear of an inflation spike is driving bond markets.
“However…[we think] comparisons with the [UK] interest rate hikes post Russia’s invasion of Ukraine are not [sound],” she said.
For what reasons might UK interest rates increase in 2026?
Wall acknowledged that BoE governor Andrew Bailey did “leave the door open to raising rates on the outside chance the [Iran] war causes prolonged and stubborn inflation”.
The Hargreaves Lansdown analyst isn’t alone in cautioning against comparisons from the not-so-recent past (Russia invaded Ukraine in 2022), in a bid to try to navigate the future.
“The [UK property] market isn’t moving [in 2026] at the same pace as 2025, due to the Q1 boost we experienced last year from the stamp duty holiday ending,” says Foxtons CEO Guy Gittins.
What is the current UK inflation rate?
“Following the increase in inflation to 3.3% this month, a hold on the base rate provides a welcome degree of stability for the property market.
“It also gives buyers greater certainty around borrowing costs when making long-term financial decisions.”
What are critics of the BoE’s interest rate ‘hold’ decision saying?
Chris Hodgkinson, managing director of House Buyer Bureau, believes the BoE should have acted to get the UK out of a rut.
“Another hold on UK interest rates is unlikely to do much to lift property market sentiment.
“The market is already treading with great caution against a backdrop of economic and geopolitical volatility and, while…[the BoE’s ‘hold’] decision provides a degree of certainty, it also prolongs the current sense of inertia.”
What have private property buyers and sellers been waiting for?
Mr Hodgkison added: “Buyers and sellers have been waiting for a clearer signal that borrowing costs are on the way down and, without it, many will continue to sit tight.
“As a result, this ongoing ‘hold’ [decision] risks sowing further uncertainty into a market that’s already lacking confidence, and it certainly won’t be enough to jump-start activity.”
Similarly issuing advice to expect more of the same is Freelancer Financials.
Pointing to contractors looking to buy their first home or remortgage, the specialist mortgage broker says the holding pattern they find themselves in is down to the ‘borrowing costs’ that Hodgkinson spoke of.
What are mortgage lenders setting their product interest rates on?
Freelancer Financial says: “The appearance, and disappearance, of sub-4% mortgage deals amongst lenders’ headline rates is down to it too.
“And it’s this —lenders are setting mortgage interest rates based on swap rates, not the BoE base rate.
“Contractors must bear in mind that the fractious state of the global economy is pushing these swap rates up. And until we see some semblance of stability, not much will change.”
What is the average UK mortgage rate?
It is swap rates that Freelancer Financials’ John Yerou, its CEO, says are in play when contractors approach a lender about the best mortgage rate, not the BoE base rate.
“The rates that lenders are offering as of early May 2026 are nowhere near 3.75%. Nor 4% for that matter. The reality is much more likely to be around the 5% mark.”
What is the current five-year fixed mortgage rate in the UK?
At Cleerly, chief executive Sat Singh says five per cent is indeed the prevailing mortgage rate as of Q2 2026.
And Mr Singh said the “real” story for contractors as of May 2026 was not (currently) incremental base rate fluctuations, but ‘how the underlying costs of lending are unfolding.’
“Despite the freeze, international instability and soaring energy costs have kept pressure on the rates banks pay to fund fixed deals, pushing many five-year averages back toward the 5% threshold.
“For contractors seeking a mortgage, the takeaway is clear: do not mistake a ‘hold’ for a ‘halt’ in pricing shifts.”
How important is specialist underwriting for complex income mortgage applicants?
Cleerly’s Sat Singh continued to ContractorUK: “We are seeing a tightening of automated high-street ‘stress tests,’ making specialist manual underwriting essential for those with complex income structures.”
Despite the base rate hold not seeming to keep a lid on mortgage rate inflation, the continuance at 3.75% might offer a respite to some contractors.
“The hold at 3.75%…[is somewhat of a] welcome pause that brings short-term certainty for contractors navigating affordability and lender criteria,” Jo Mitchell, a manager at Broadbench, told ContractorUK.
“The key takeaway is stability: those seeking or holding a mortgage can plan with more confidence…[even if] rates remain elevated versus recent years.
What does the interest rate hold mean for UK property?
Mitchell added: “For the wider UK property market, this decision should support a steadier footing rather than spark rapid growth.”
With the right, unblemished criteria behind them, some contractor-borrowers might even be able to leverage the steadier footing.
Are 4% mortgage deals still possible?
Freelancer Financials’ John Yerou explained his assessment: “Don’t get me wrong, lenders are — albeit fleetingly — releasing mortgage deals around 4%.
“And when a borrower approaches who has a pristine borrower profile — 100% clean credit, large deposit/equity, spectacular disposable income — then they could still land something close to that four per cent deal.
“However, for the typical borrower, 4% interest rates are way out of reach. So, yes, the base rate may be 3.75%. But for the majority — it’s time to get realistic.”