Mortgage Outlook for 2026: What UK Buyers and Homeowners Need to Know

As we head into 2026, the UK mortgage market is entering a transitional phase. After years of elevated interest rates and affordability challenges, borrowers are cautiously optimistic — but structural headwinds remain.

1. Interest Rates: Gradual Declines Expected

One of the biggest drivers of mortgage costs is the Bank of England’s base rate. After years of tightening to combat inflation, rates have started to ease.

• At the end of 2025, the Bank of England trimmed its Bank Rate from 4% to 3.75%. Forbes
• Mortgage brokers and market analysts widely expect further cuts, with some forecasting the Bank Rate could fall to around 3.0–3.25% over the course of 2026. Forbes

This shift is already filtering into lender pricing. HSBC became the first major UK bank in 2026 to reduce mortgage rates, prompting speculation that other lenders will follow to remain competitive. The Guardian

What this means:
Hower base rates typically lead to cheaper mortgage products, especially fixed deals. Brokers tell Forbes Advisor UK that markets “broadly expect Bank Rate to bottom out between 3% and 3.25%,” potentially benefiting buyers and remortgagers. Forbes

2. Mortgage Rates: Stabilising But Still Above Pre-Pandemic Lows

Despite expectations of rate cuts, fixed mortgage rates aren’t expected to plunge dramatically.

According to Capital.com’s recent forecast:

• Most projections see UK fixed mortgage rates settling in the 3.5%–4.5% range over the next few years, including through 2026. Capital
• This is partly because lenders price deals based on swap rates and credit risk — not just the Bank Rate — and markets have already “priced in” anticipated cuts.

So while rates are likely to be lower than 2024/2025 peaks, they may stay above the ultra-low levels seen in the early 2020s.

3. Lending Growth: Modest But Positive

The broader mortgage market is set for modest growth rather than a boom.

• UK Finance forecasts that overall gross mortgage lending will rise to around £300 billion, a 4% annual gain. UK Finance
• However, the number of property transactions is expected to dip slightly — by roughly 10,000 — as affordability constraints curb buyer activity. UK Finance

Commenting on the forecast, James Tatch, Head of Analytics at UK Finance, notes that while the market showed strength in 2025, “tight affordability is likely to limit borrowing options for potential buyers in 2026.” Mortgage Professional

Another outlook from the EY ITEM Club expects mortgage growth to slow to about 2.8% in 2026 — reflecting broader economic headwinds and income pressures. mortgagesolutions.co.uk

Key takeaway:
Growth isn’t predicted to collapse, but it won’t race ahead either. Mortgage activity will likely remain steady, driven by refinancing as millions of fixed-rate deals mature.

4. Refinancing and Remortgaging: A Big Story in 2026

A major structural driver for next year is the large number of mortgages coming off fixed-rate deals.

• Around 1.8 million fixed-rate mortgages are due to expire in 2026, creating a significant refinancing wave. UK Finance

With rates trending lower than recent highs, many borrowers will shop for new deals — which should support lending volumes even if purchase borrowing remains restrained.

5. House Prices and Affordability

Pressure on affordability persists, but relief may be on the horizon.

Nationwide’s chief economist predicts:

“Housing market activity is expected to strengthen as affordability improves gradually via income growth outpacing house price growth and modest declines in interest rates.” The Guardian

Nationwide forecasts annual UK house price growth of roughly 2%–4% in 2026, reflecting a market that’s stabilising rather than overheating. The Guardian

Recent data also show that annual house price growth slowed significantly in 2025 — down to the lowest level in nearly two years — underscoring how sensitive prices have been to borrowing costs. MoneyWeek

6. Broader Economic Headwinds

Macro conditions will continue to shape the mortgage landscape:

• The UK construction sector — including housebuilding — has endured a downturn, with activity contracting for the 12th consecutive month. The Guardian
• Consumer borrowing surged toward the end of 2025, hinting at resilience but also affordability stress for households. Reuters

These trends are likely to temper house purchase demand and apply downward pressure on prices and lending growth.

What This Means for Buyers and Homeowners

For prospective buyers:

• Lower rates could slightly improve affordability, but prices aren’t expected to fall dramatically.
• Competition for the best deals will be strong, especially for those with larger deposits or good credit profiles.

For remortgagers:

• 2026 may be a good year to renegotiate terms as refinancing activity and lower base rates support more competitive pricing.

For existing homeowners:

• If you’re on a tracker or variable rate, further rate cuts may reduce monthly payments.
• If you’re on an expiring fixed deal, start exploring options early.

Summary: 2026 in a Nutshell

Overall: The UK mortgage market in 2026 is shaping up to be one of gradual easing and stability rather than dramatic change. Borrowers should stay informed and prepared — with strategy tailored to their individual financial situation — to make the most of a potentially more favourable borrowing environment.