Will mortgage rates fall this year?
Mortgage lenders are sending mixed messages to borrowers with a mixture of rate cuts and hikes as the conflict in the Middle East continues to rattle markets. Whether you're buying a home, remortgaging or you’re a buy-to-let landlord, we look at the outlook for 2026.
Variable and tracker mortgages are now more than twice as popular compared to just over six months ago, according to analysis, as higher borrowing costs have switched up borrower behaviour.
Borrowers are increasingly interested in shorter-term fixed deals – such as two year fixes instead of five year fixes – as mortgage rates have risen sharply in recent weeks, search activity on the Moneyfacts website found.
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“With fixed mortgage rates rising sharply in a short space of time, more borrowers appear willing to gamble on rates falling sooner than markets currently expect.”
How mortgage rates have risen
Home buyers would have been hoping for a fall in mortgage costs in 2026, but ongoing tensions in the Middle East since the end of February have put pricing into flux.
Borrowers were starting to benefit from falling rates at the start of the year, with interest rates steadily falling as inflation slowed to 3%, but mortgage pricing surged in March following the US-Israeli invasion of Iran.
Peace talks in recent weeks have led to the market cooling somewhat, however rates are still significantly higher than prior to the conflict.
For example, the average two year fixed rate mortgage was 4.85% on 1 February. By 15 May that had risen to 5.75% – an increase of 90 basis points.
For a five year fix, the rise has not been quite as big. On 1 February the average rate was 4.94%. As of 15 May it was 5.67% – a rise of 73 basis points.
By comparison, on 1 February, prior to the US-Israeli attack on Iran and the surrounding Middle East, the average two year variable rate mortgage was 4.41%. On 15 May it was 4.56%, an increase of just 15 basis points.
Interest in variable and tracker mortgages increases
Variable and tracker mortgages remain a minority choice. But the increase in interest in these mortgages points to a view among borrowers that rates could ease in the near term.
“Tracker and discounted variable mortgages can appear more attractive when fixed rates rise quickly, as they typically start lower,” said French.
However, he pointed out, they also pass much more of the risk of future base rate or standard variable rate changes directly onto the borrower, rather than the lender taking on that risk through a fixed-rate product.
Borrowers also seem keen on hedging their bets with shorter-term fixed options. With five-year fixes rising by more than 70 basis points since February, according to Moneyfacts data, many borrowers appear to be favouring two-year deals in the hope the current spike in rates proves temporary.
What is driving mortgage rates?
An interest rate cut in December had helped mortgage pricing fall below 5% and even below 4% in some cases, prompting a drop in mortgage rates in the build up to the new year, as the cost of borrowing was expected to continue falling.
At the start of the year, the Bank of England’s (BoE) Monetary Policy Committee (MPC) had been expected to lower interest rates twice in 2026, but instead it has held rates at its last three meetings in February, March and April.
The base rate has stayed at 3.75% since the start of 2026 and swap rates, which help determine the cost of fixed-rate mortgages, surged after the outbreak of the conflict in Iran. This caused mortgage rates to rise rapidly.
The rate of increase in swap rates has slowed in recent weeks, although they remain significantly higher than prior to tensions in the Middle East.
We reveal how to get the best deal when remortgaging.
What are swap rates?
Swap rates are agreed between financial institutions, like a lender and an insurance company, and refer to the rate of interest one agrees to pay the other in return for funds over a set period of time.
Ultimately, they reflect the wholesale cost of funding for banks that influences how they price credit such as loans and mortgages.
This means that if swap rates go higher, it’s more expensive for the lender to borrow and it will have to hike rates on its mortgage products.
Swap rates are based on what markets believe will happen to interest rates and inflation in the future.
With the ongoing conflict in Iran stoking fears that inflation could spike globally, leading to higher interest rates, this has seen swap rates rise.
In turn, lenders have been pushing up their mortgage rates as it becomes more expensive for them to borrow money.
What is the forecast for interest rates?
What happens with mortgage rates depends on the direction of interest rates. At the start of the year, the BoE had been expected to cut interest rates twice in 2026. However, the US-Israeli attack on Iran on 28 February scuppered these plans.
In its April meeting, the MPC again voted to maintain interest rates at 3.75%. Huw Pill, the Bank's chief economist, was the only member of the Bank's nine-member Monetary Policy Committee to vote for a rate rise.
Predictions about the future direction of interest rates will drive mortgage rates. And what happens with interest rates will largely depend on inflation – the cost of goods and services, which are heavily influenced by energy prices.
At its April meeting, the MPC again pointed to how the war in the Middle East is disrupting the supply of energy, raising its price and pushing up households’ motor fuel costs; “we expect utility bills to increase as well”, it said.
Inflation increased by 3.3% in the 12 months to March – higher than the MPC predicted in February, before the start of the war, and largely driven by increases in transportation costs, especially motor fuels. “It is likely that it will be higher later this year,” the Committee said.
It also expects energy price rises to have knock-on effects. As businesses’ bills go up, it is likely they will increase their own prices to cover the cost and workers may ask for higher wages as their bills also rise.
“The impact on the economy and inflation will depend on how much energy prices go up and how long they stay raised,” the MPC said.
Given the context, some economists now believe the MPC is likely to hold rates in 2026, and perhaps even raise them.
Advisory firm Oxford Economics believes the MPC will hold rates where they are until 2027.
Meanwhile, Pantheon Macroeconomics expects interest rates to be hiked twice in 2026, followed by three cuts in 2027.
The Bank of England appeared to sound its concerns over future interest rates in its most recent Monetary Policy Summary report in April.
In it were three scenarios that could occur due to energy shocks caused by the Iran conflict, with the worst-case scenario suggesting inflation will peak at 6.2% in early 2027, in which case interest rates could rise as high as 5.25%.
However, on 18 May, the International Monetary Fund (IMF) said the Bank of England will not need to raise interest rates this year to combat the effects of rising energy costs.
The IMF has assessed UK monetary policy is already "sufficiently restrictive to ensure that second-round effects from higher energy prices to inflation are contained”, it said in its latest update on the state of the UK economy.
The report also upgraded its forecast for UK economic growth this year to 1%, up from the 0.8% figure it had expected only last month.
Should you fix your mortgage?
If you are one of the estimated 1.8 million people on a fixed-rate mortgage that is expiring this year, according to UK Finance, it could be a good idea to hedge your bets and fix now.
Fixed rates can offer you certainty over what you’ll pay in interest over the course of the deal, even if rates do rise.
Plus, under the Financial Conduct Authority’s (FCA) mortgage charter, you can lock in a new fixed-rate deal six months before your current one is due to end and then shift to another, more competitive one, later on.
Mendes, from John Charcol, said: “In this kind of market, the better approach is often to lock in an affordable option and then switch if pricing improves before completion.”
What about variable mortgage rates?
Standard Variable Rate mortgages – the ones borrowers tend to roll onto once their fixed rate deal comes to an end – are still an expensive option. The average Standard Variable Rate (SVR) was 7.13% as of 1 May, according to Moneyfacts.
Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall further, the money saved from getting rid of an expensive SVR earlier could make it worth it.
You could also opt for a tracker mortgage which more directly follows the BoE base rate.
David Hollingworth, associate director at mortgage broker L&C Mortgages, said: “Anyone that is sitting on a standard variable rate because they are hoping for more drops in fixed deals should consider whether a tracker would be a better option.
“The SVR is likely to be substantially higher and even if fixed rates do reduce over time, each month on SVR could be costing a lot more.”
What about buy-to-let mortgage rates?
Buy-to-let fixed mortgage rates have soared due to unrest in the Middle East.
The average two-year rate was at 4.65% on 2 March, but sits at 5.35% as of 18 May, according to Moneyfacts. The five-year rate was at 5.04% on 2 March, but 5.66% as of 18 May.
Overall buy-to-let product choice has fallen sharply since the start of the conflict in the Middle East too. On March 2, there were 5,696 buy-to-let mortgage products available but just 5,052 on 18 May, according to Moneyfacts.
Despite recent buy-to-let mortgage rate increases, they are still considered competitive compared to how high they have been over the past few years – they were pushing 7% in the summer of 2023.
Landlords will have been hoping for a fall in mortgage rates later this year to help offset the 5% stamp duty surcharge, less generous mortgage interest tax relief and higher income tax charges on property introduced in the 2025 Autumn Budget and coming into effect in April 2027.
Landlords have also had to ensure they meet the new Renters’ Rights Act rules, which came into force on 1 May. In addition, they will be expected to invest up to £10,000 to reach an EPC rating of C by October 2030. Growing costs could dampen the profitability of buy-to-let.
What mortgage support is available?
Mortgage rates are much higher than when many people would have last remortgaged. Some homeowners will be coming off rates as low as 1% or 2%.
If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.
The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.
About 1.7 million mortgages have benefitted from the mortgage charter since it was introduced in June 2023, according to the City watchdog.
Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments. Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties.
Should I overpay my mortgage?
If you’ve got some spare cash and you're on a low rate, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate.
Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.
Recent research from finance broker Clifton Private Finance found someone on a £250,000 mortgage paying it off over 25 years at 5% could save £40,000 in interest and shave four years off the term by overpaying by just £150 a month.
“You can’t control the market, but you can control how you respond to it. Rates change, lenders adjust their products, and the wider environment is always shifting,” said George Abouzolof, senior mortgage advisor at Clifton.
“But choosing whether to overpay your mortgage, and by how much, is entirely within your control. It’s one of the few levers homeowners can pull to improve their long-term financial position.”
