Mortgage price war as interest rates drop – with 3% mortgages ‘by spring’ ...Middle East

Mortgage rates could fall below 3 per cent by spring next year, experts say, as a price war is expected between lenders in 2026.

The Bank of England (BoE) is widely expected to cut interest rates by 0.25 percentage points to 3.75 per cent today, which could push fixed mortgage rates below 3.5 per cent in the next few weeks and further in the new year.

Mortgage rates have already been falling in recent weeks, with several major lenders offering rates hovering just above 3.5 per cent.

Simon Gammon, managing partner of Knight Frank Finance, said: “Lenders have been trimming rates for several weeks, but we think January will bring fresh momentum. The lenders begin the year with fresh targets and will be eager to make headway quickly.

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“The mortgage market isn’t likely to grow substantially in 2026, so the lenders will focus on taking market share. This sets the stage for a price war in the new year, led by the larger high street banks.

“Given that leading fixed rates now sit at 3.55 per cent, it’s possible that we see two-year fixed rates below 3 per cent by spring.”

Justin Moy, managing director at EH Mortgages, added: “It’s unlikely we will see a significant change before Christmas, given that the base rate cut expected today has already been priced into the current deals.

“Lenders will pull every trick to encourage the property market to start moving, as rates will continue to slide beyond that 3.5 per cent threshold.”

There are approximately 1.8million homeowners on deals who will need to remortgage in 2026 as their deals expire, giving lenders an opportunity to entice customers with lower rates.

David Hollingworth, associate director at L&C Mortgages, said: “Rising market expectation of another rate cut coming sooner than previously expected has already helped to drive down the cost of fixed rate mortgages.

“That will be welcome news for those thinking about moving home or coming to the end of a deal, and lenders have shown little let-up in their repricing activity as the festive season approaches.

“I’d expect to see that competition to continue in the New Year, as lenders look to get off on the right foot.”

The average two-year fixed mortgage rate is 4.82 per cent, according to Moneyfacts, whilst the average five-year fixed rate is 4.9 per cent.

However, there are rates available for much cheaper on the market, with Santander offering a two-year fix deal of 3.55 per cent and NatWest offering a five-year fix deal for 3.75 per cent.

The best deals are reserved for those with the highest deposit or equity in their property.

It comes as inflation fell by more than expected to 3.2 per cent in November, official figures showed this week.

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The reading is the lowest since March and will prompt the BoE Monetary Policy Committee (MPC) to cut rates, experts say.

Those who are coming to the end of their fixed term may wonder whether to wait for a fall in rates or lock in a new deal now.

Meanwhile, people on variable or tracker rates, which follow the BoE’s base rate, will see an immediate drop to their monthly repayments.

Holly Tomlinson, financial planner at Quilter, said: “For mortgage holders, today’s expected cut will be most immediately felt by those on tracker and variable-rate deals, where monthly repayments should begin to edge down.

“For those with six months left on their current fixed mortgage deal, it can be worth securing a new fixed rate now to avoid moving onto a higher standard variable rate. Many lenders allow you to book a rate in advance, and you can review the market again before your new deal starts.”

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