Sky News: Where will mortgage rates land?

The lowest two-year fixes now start from 3.51% and the best three-year fixes are not much more expensive. Over the next few months I hope we will have more lenders offering fixed rates closer to 3.5% which will get us back into the territory of cheap mortgages again.
Most borrowers are opting for two-year fixes at the moment as they tend to be lower than the five-year fixes. If you preferred certainty, have a stable income and plan to stay in your home for several years — locking in a 5-year fix now, especially with a lender like Santander, Nationwide or NatWest, seems a solid choice. Whether rates get much cheaper or not will probably depend on the Bank of England and if the base rate comes down much more.
If you’re more flexible or willing to take a bit of a gamble or you might move in a few years, or you expect rates to fall significantly, a 2– or 3-year fix is a good option.

Unfortunately the vast majority of borrowers won’t see 1 and 2% again in their mortgage lifetime. But I’d expect to see more rates in the 3% region in the next few months and that’s where they should stay for the foreseeable future. Early to mid 3% rates are palatable for most mortgage holders. The biggest change needed is the disparity between high and low loan to values. Since the mortgage crisis started there is little difference in rate for a 10% deposit and a 40%, this needs to change. Borrowers should be rewarded for less risky borrowing.

Many of the high street lenders have differentiated products for purchase and remortgaging, and I sense this will continue into 2026 as lenders look to encourage the housing market more, especially with product transfer deals more keenly priced by the high street lenders on the whole. Short-term deals will be the headline grabbers, but the longer-term deals that are often coupled with the extended affordability schemes, such as Nationwide's Helping Hand, will continue to be at a small premium to the lowest deals - you pay extra for borrowing extra. Rates will continue to slide and not fall, with most lenders aiming for 3.5% as the next benchmark. Whilst base rate may continue to fall, those rate cuts are already priced in and won't make a huge amount of difference. Historically, rates in the 3%'s are cheap, so lenders and mortgage holders may start to think about those ultra-long-term deals, especially where affordability continues to be tight.

Mortgage rates are finally moving in the right direction, and I expect them to continue edging down over the coming weeks and months. For the strongest borrowers, those with large deposits or plenty of equity, I see rates eventually settling around the 3% mark once markets stabilise. What we really need now though is consistent pricing between purchase and remortgage products. At the moment, some lenders are dangling cheaper rates to buyers while remortgagers get hit with higher costs. Consumers aren’t fooled by this and it doesn’t stimulate the market, it just creates frustration. The other issue that borrowers currently face is risk vs reward. Borrowers with big deposits simply aren’t being rewarded enough. The gap between high-LTV and low-LTV rates has become far too narrow, despite these customers being the lowest risk on a lender’s book. If lenders want a healthier, more sustainable mortgage market, fair pricing and proper risk-based incentives must return.

Lenders are just jostling for the last year end business so I would expect them to come out in the New Year with a bang. We have seen a lot of policy enhancements as lenders try and tempt the market with additional borrowing power and rates starting with a 3. It is unlikely rates will fall significantly lower but remain steady. Swap rates are down and Gilts are edging up marginally but the forecast of the Bank Base rate cut next week may give borrowers some Christmas cheer. Overall the market will likely remain stable with organic adjustments unless a curveball comes out of nowhere.

Borrowers need to adjust their expectations: the era of near-zero interest is over, and we are rapidly settling into a "new normal" of around 3.5%.

Crucially, borrowers shouldn't just watch the Bank of England Base Rate. Fixed-rate mortgages are priced based on Swap rates—predictions of what interest rates will be in the future. The Swap market has already priced in the expected Base Rate cuts for the coming year. This is why fixed deals aren't plummeting, even as inflation news improves; the market has effectively already "banked" that data.

I expect the Base Rate to slowly drift down to align with this 3.5% level by late 2026, but it is unlikely to go lower. Sticky service inflation prevents the Bank from cutting aggressively. Because Swap rates have flattened, lenders have little room to drop fixed rates significantly further. We are moving from volatility to stability, and 3.5% is the destination.