Will mortgage rates drop in 2026? Tembo's expert mortgage rate predictions for 2026

Tembo's 2026 predictions at a glance:

• Inflation to fall to 2.5% by end of 2026, and possibly reach 2% in 2027.
• Bank of England could reduce the base rate to as low as 3.25% by end of 2026
• Mortgage rates could fall to below 3.5% by early 2026. If base rate is cut in 2026, mortgage rates should continue to reduce gradually too.
• House price growth to be modest, somewhere in the range of 1-5%, though London and the South East may see slower rises compared to other regions like the North.

What will happen to mortgage rates in 2026?

Although nothing is known for certain, we expect mortgage rates to decline in 2026. In the last few weeks of 2025, mortgage lenders have entered into a price war, with some deals the lowest lenders have offered since 2022. Right now, the lowest 2 year fixed and 5 year fixed rate deals offered by our panel of over 100 lenders is 3.55% and 3.72% respectively.

This is in anticipation of the Bank of England cutting the base rate to 3.75% on the 18th December. Plus, the fewer mortgage approvals currently means there's less demand, so lenders are trying to be more competitive to entice customers.

Taking all this into consideration, it's very possible we could see rates enter sub 3.5% by early 2026. Mortgage rates in 2026 will largely (but not solely) depend on the Bank of England's base rate, which is heavily influenced by inflation.

Right now, it's expected to hit 2.5% by the end of 2026, and possibly reach the Bank of England's 2% target in 2027. This will give the Bank of England more wiggle room to reduce the base rate, which could fall to 3.25% in 2026. Mortgage rates should fall in line with the base rate, creating a window of opportunities for buyers and homeowners holding out for more favourable deals.

But because the Bank of England is likely to continue it's cautious "wait and see" approach, while lower mortgage rates are likely to be on the horizon, it may take until the middle or end of 2026 to feel the full effect.

What does this mean for your mortgage?

If you have a mortgage deal ending in 2026, you'll want to watch these trends closely. If the base rate does fall significantly to around the 3.00% to 3.50% mark, this could mean much more affordable monthly payments compared to the rates seen in 2024 and 2025.

However, a lot can happen. Unforeseen economic events or persistent inflation could delay these cuts. This uncertainty makes it more important than ever to plan ahead. See what mortgage rates you could be eligible for without applying with a free Tembo plan

Should I fix my mortgage for longer?

At the moment, 2-year fixed rate deals available on the market are lower than 5-year fixed rate deals. This reflects the fact that lenders are expecting the base rate to drop sooner rather than later, and it's harder to predict what the economy will look like over a longer time period.

While a longer fixed term might not always secure a lower rate, it could align better with your personal financial situation. It's always wise to get expert advice tailored to your circumstances to understand the best mortgage options available. Our award-winning team can help you make an informed decision about whether a longer fix is right for you.

What will happen to house prices in 2026?

House prices are influenced by a delicate balance of supply, demand, and borrowing costs. As mortgage rates change, so does buyer affordability, which directly impacts property values.

Lower mortgage rates generally boost buyer demand. When it becomes cheaper to borrow money, more people can afford to enter the market or move up the property ladder.

If mortgage rates fall to the 3-3.5% range in 2026, we could see a wave of buyers who were previously holding off decide to make their move. This renewed demand, especially if it outpaces the supply of new homes, would likely lead to a modest increase in house prices.

However, at the moment, some experts predict house prices to grow in 2026, somewhere around the 4-5% mark. This indicates a healthy, functioning market rather than a boom or a bust situation. But others are taking a more pessimistic view, predicting just 1% house price growth due to the ongoing stamp duty effects and broader economic challenges.

What should you do?

Deciding whether to buy, sell or remortgage a home is a personal decision that depends on your financial situation and life goals. However, understanding the market predictions for 2026 can help you make a more informed choice.

Will 2026 be a good year to buy a house in the UK?

If you're thinking of buying in 2026, the potential for lower mortgage rates is good news. A lower rate could reduce your monthly payments and increase your overall borrowing power.

💡Tembo's top tips:

• Start saving now: Even with lower rates, you'll still need a healthy deposit. The larger your deposit, the better the mortgage deals you could access.
• Improve your credit score: Lenders offer the best rates to borrowers with strong credit histories. Take steps now to check your score and make improvements if needed.
• Understand your mortgage options now. A free Tembo plan can help you see your true affordability and explore ways to boost your budget. Create a plan now

Will 2026 be a good year to sell a house in the UK?

For those looking to sell, 2026 could be a positive time. Increased buyer demand driven by lower rates could make it easier to find a buyer and achieve a good price for your property, even if overall house price growth is sluggish.

💡 Tembo's top tips:

• Price realistically: Even in a stronger market, buyers will be well-informed. An overpriced home will struggle to sell. Work with an estate agent to set a competitive asking price based on local market conditions. Or generate a free report aggregating 120+ data points for your property when you create a Tembo plan.
• Get your home ready: Make any necessary repairs or improvements well in advance to ensure your property stands out.
• Know your next move: Are you buying another property? Understand your budget and what you can afford before you put your home on the market. A Tembo plan will show you all your options, including your buying budget and indicative mortgage rates. Create yours today.

Will 2026 be a good year to remortgage in the UK?

If your current mortgage deal is ending in 2026, falling interest rates could mean you're able to remortgage onto a cheaper deal, potentially lowering your monthly payments.

💡 Tembo's top tips:

• Start early: Don't wait until your current deal is about to expire. You can typically lock in a new mortgage offer up to six months in advance. Plus, through Tembo you can benefit from our free rate checking service. So if rates drop after you've locked in a new deal, just ask your dedicated broker to reapply for you at no exta costs.
• Consider your goals: Are you looking to lower your payments, release equity, or pay off your mortgage faster? Knowing your goals will help you find the right remortgage product for your needs. A Tembo plan can help you explore all your options.
• Review all of your options: Don't just automatically renew with your current lender. Use a service like Tembo to compare deals from over 100 lenders to ensure you're getting the best possible rate