29th December 2025
The UK property sector is heading into the new year with renewed stability, prompting investors to think strategically about how to position themselves for 2026. Understanding how borrowing costs are evolving both today and over the coming years is essential for securing the most competitive financing when purchasing UK investment property.
Below, we explore current mortgage rates, the factors likely to influence them, and what the outlook could look like in 2026.
How rates changed in 2025
Interest rates were lowered on four occasions over the course of the year, bringing the base rate down from 4.75 per cent to 3.75 per cent.
The move has provided welcome relief for mortgage holders. Data shows the average two-year fixed mortgage rate fell from 5.52 per cent in January to 3.55 per cent by December. Five-year fixed deals also became cheaper, although the reduction was more modest, easing from 5.3 per cent to 3.72 per cent over the same period. While borrowing costs remain well below the highs seen in mid-2023 when two and five-year fixed rates climbed to 6.86 per cent and 6.37 per cent respectively many homeowners facing a remortgage in the year ahead will be hoping for further declines.
So what lies ahead, and which forces are likely to shape interest rates and mortgage pricing in 2026?
Inflation, Jobs & Growth
Interest rates are widely expected to move lower again next year, driven in part by forecasts showing inflation continuing to cool.
When inflation rises too quickly, the Bank of England typically increases interest rates to rein in borrowing and consumer spending. As price pressures ease, however, policymakers gain more flexibility to begin lowering rates.
Inflation, measured by the Consumer Prices Index, currently stands at 3.2 per cent. The Office for Budget Responsibility expects it to average around 2.5 per cent over the course of next year, before falling back to the Bank’s 2 per cent target in 2027.
Alongside inflation, the Bank will be closely monitoring the health of the wider economy and the labour market.
Periods of weak economic growth and elevated unemployment often strengthen the case for rate cuts, as cheaper borrowing can help stimulate business investment, encourage hiring and reduce overall operating costs.
What’s next for UK Mortgage Rates in 2026?
Around 1.8 million households will need to refinance their mortgages next year, according to figures from UK Finance.
Borrowers coming to the end of two-year fixed deals are likely to benefit, as many locked in rates of roughly 4.75 per cent when they last fixed. Current mortgage deals are generally cheaper than that level.
The picture is less favourable for homeowners whose five-year fixes are expiring. Many of these loans were secured when interest rates were exceptionally low, typically between 1 and 2 per cent. As those deals end, borrowers are likely to face new rates of around 3.5 per cent or higher, or risk moving onto standard variable rates, which can exceed 7 per cent.
Mortgage lenders tend to price loans based on expectations for interest rates over the longer term, rather than responding directly to individual changes in the Bank of England’s base rate. If rates fall to around 3 per cent over the course of next year, this could help push mortgage pricing lower.
Further reductions are possible if base rates stabilise near that level, although meaningful movement may not come until later in the year.
He adds that mortgage rates are influenced as much by future expectations as by current policy, which helps explain why five-year fixed deals are once again priced higher than two-year fixes. Uncertainty about the longer-term outlook is currently being reflected in those longer fixes.
Why off-plan buy-to-let could reduce borrowing costs
With mortgage rates expected to trend lower over time, off-plan buy-to-let purchases present a compelling opportunity for investors. Buying off-plan allows you to secure a property at current prices while completing at a later date, potentially benefiting from more competitive mortgage rates when your purchase is finalised.
Explore our latest off-plan buy-to-let investment options and speak with our experienced advisors to learn more about the opportunities available.
As always, we recommend seeking advice from an independent mortgage broker before proceeding. Having a clear understanding of the market will help ensure those discussions lead to the best possible outcome.
