Analysts expect five-year fixed rates to dip below 3.5%
The Bank of England’s decision to cut interest rates from 4% to 3.75% has prompted UK lenders to lower mortgage costs, with experts forecasting further reductions in early 2026.
The central bank trimmed its official rate on Thursday, marking the sixth cut since August 2024. The reduction had been widely expected as inflation eased in recent months, falling to 3.2% in November from 3.6% in October.
Nationwide became the first major lender to announce rate cuts following the Bank of England’s move. The mutual stated that borrowers on its Standard Mortgage Rate would see a reduction of 0.25 percentage points from 1 January, lowering the rate to 6.49%. Customers with existing Nationwide tracker mortgages will also see automatic adjustments in line with the base rate cut.
Clydesdale Bank and Virgin Money, both owned by Nationwide, announced similar reductions. From 15 January, the standard variable rate at both lenders will fall from 6.99% to 6.74%. Virgin Money’s updated tracker rates, reflecting the new 3.75% base rate, became available on 19 December.
Approximately 500,000 homeowners with mortgages tracking the Bank of England’s rate are likely to see monthly repayments fall by £29 for the average outstanding loan, BBC reported. A further 500,000 homeowners on standard variable rates could see a typical reduction of £14 per month, assuming their lenders pass on the benchmark rate cut.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said lenders were keen to attract more business with improved deals as the market entered 2026. “With some lenders repricing on a weekly basis, it is now possible to access a short-term fix at just over 3.5%,” he told The Financial Times. “Given how relatively quiet activity is with the usual pre-Christmas lull, we would expect to see rates dip below that level in late December or early January.”
Five-year fixes could fall below 3.5% slightly later in the new year, down from current levels just over 3.7%, The Financial Times reported.
As of 18 December, the average two-year fixed residential mortgage rate stood at 4.82%, according to financial information company Moneyfacts. The five-year rate was 4.90%.
Nick Hale, chief executive of home moving group Movera, said the rate cut had been widely anticipated and would provide a boost for the housing market. “We’re already seeing lenders reducing their rates, increasing affordability for borrowers, and I expect this to be the springboard for a busy 2026 in the mortgage market,” he said.
