Easing mortgage rates may allow for a “modest” growth in house prices in 2026 without improving or worsening affordability pressures on first-time buyers and homemovers, analysis from Moneyfacts has suggested.
The analysis found typical first-time buyers borrowed around £236,000 in 2025 against an average property value of £310,000 with an LTV of 78 per cent.
Similarly, homemovers borrowed £251,000 for houses valued at £466,000 at an average LTV of 58 per cent.
However, this is set to change in 2026 as markets currently predict the Bank of England will lower the base rate from 3.75 per cent to between 3.25 and 3.5 per cent.
Moneyfactscompare head of news, Adam French, explained: “After more than three years of higher borrowing costs, even small cuts in mortgage rates can have a meaningful effect on buyer behaviour.
“With markets expecting at least one further 0.25 percentage point cut to the base rate, the mortgage landscape in 2026 may be more forgiving than at any point since 2021.
“Our modelling suggests that easing rates may make modest house price growth possible without stretching affordability further, an important shift after the intense affordability squeeze of 2022-2025.”
However, French pointed out that first-time buyers still face the steepest challenges, with many stretching to higher LTV deals given the need to save a considerable deposit.
In contrast, he suggested that remortgage borrowers who typically hold far more equity and are unlikely to need to borrow more, stand to benefit more from easing rates.
“Any expectation of more substantial growth should be tempered by the fact that borrowing costs remain well above the ultra-low levels of the 2010s. Even with rate cuts, affordability remains tight,” he added.
“Lower rates remove a headwind rather than create a tailwind, making honest house price growth possible, but not guaranteeing it.
“Unless rates fall further or incomes rise faster than expected, the headroom for growth is likely to remain tight.”
Moneyfacts evidenced this point by describing a first-time buyer at 80 per cent LTV who would have to borrow £236,000 to afford their home as of January 1 2026.
This would equate to £1,352 per month in repayments.
As the year draws to a close, and the market is affected by house price increases and predicted rate decreases, the hypothetical buyer would have to borrow £241,900 to afford the same average house.
This would lead to an increase in monthly repayments, rising to £1,345.
The change in house prices is not expected to affect homemovers to the same degree as Moneyfacts predicted their monthly repayments are set to decrease over 2026, falling from £1,364 at the start of the year to £1,358 at the end.
tom.dunstan@ft.com
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