Tembo Market Watch: January 2026

TLDR:

• Mortgage rates show early signs of easing: Some lenders have started cutting fixed rates, but Standard Variable Rates (SVRs) remain high. See what rate you could get here.
• First-time buyers set to lead sales in 2026 as lower rates could create opportunities to get on the ladder for less. Discover what you could afford with a free Tembo plan.
• House price growth slows: December 2025 saw a slight dip in price growth, with regional differences continuing. Price growth over 2026 is set to be modest.
• Government issues major update on Lifetime ISAs 
• Saving providers cut interest rates as last month’s base rate cut filters through. Shopping around is crucial to ensure you’re saving in a competitive account, while fixed-term savings may offer more stability.

Let’s break down exactly what’s happening and what this means for you.

Mortgage rate war could be brewing as the first lenders of 2026 cut rates

In the final few weeks of 2025, we saw lenders cutting their rates left, right and centre in the lead up to the Bank of England cutting its base rate on the 18th December. But so far into 2026, we’ve seen mortgage rates remain largely flat, with only marginal movement in the average two-year and five-year fixed rate deals. But there are glimmers of hope.

We’ve already seen some of the UK’s major lenders become the first providers to cut their mortgage rates this year. This could signal thethat the price war that started before Christmas, continuing  will continue into early 2026. We’ve already seen one sub-3.5% deal enter the market (although it is only available to select customers), it’s entirely possible that more mortgage deals below the 3.5% mark could enter the market before spring!

We predict mortgage rates to continue coming down gradually over 2026 as lenders price in the additional cuts to the Bank of England’s base rate expected later on this year. “We’ve already seen multiple lenders lowering rates”, Andy Shead, one of our Senior Mortgage Advisors, explains, “mortgage rates should continue heading in this direction, but slowly over the year rather than in big jumps”.

This could ease affordability for many buyers and remortgagers by making mortgage payments more affordable. Right now, the best fixed-rate deals available are already dipping close to that magic 3.5% mark.

But the major lenders that reduce their rates could tighten up their eligibility on credit rate scoring. As Brad Wright (another of our senior expert brokers) explains, “This often happens around this time of year. Lenders become hungry for new business, and may be more picky about what type of customer they want if they start offering a reduced rate”. While specialist lenders are less likely to reduce rates until there are more cuts across the board. 

When shopping around for the best deals, remember to look beyond the advertised rate. Some of the lowest mortgage rates on the market may come with higher-than-average fees, which can make the overall cost of the mortgage more expensive than other options. An expert mortgage advisor - like our award-winning team - can help you work out the best option for you from thousands of mortgages, helping you move forward with confidence. Start your journey here.

What does this mean for you?

• Fixed-rate mortgages: If your fixed deal is ending, or you’re hoping to buy soon, the recent market movements are good news. Now is the time to see what rate you could get! Remember, mortgage offers typically last between 3-6 months, and with Tembo's rate checking service, you can reapply at no extra costs if rates drop down the line*. Protecting you from potential rate rises, and giving you the flexibility to reapply if lower mortgage rates do emerge over the next few weeks or months. Get started here.
• Tracker mortgages: If you’re on a tracker, you won’t see any change to your mortgage rate until the base rate changes - which could come in spring. Find out more here. 

Variable rate mortgages: Average standard variable rates (SVRs) are still sitting well above both newly priced fixed-rate deals and tracker mortgages, meaning borrowers who revert to their lender’s SVR at the end of a fixed-rate deal may face a sharp increase in monthly repayments. See what fixed-rate deals you could get.

First-time buyers to lead sales in 2026

First-time buyers are firmly back in the spotlight as we head into 2026. Lower mortgage rates and growing lender competition are starting to open doors again. As rates edge down, and wage growth modestly outpaces inflation and house price growth, mortgages are becoming more affordable. In fact, as a share of income, monthly mortgage costs for first-time buyers are now at their lowest level since 2022. But for many aspiring homeowners, affordability still feels like the biggest barrier standing in the way.

Let’s make one thing clear: affordability isn’t just about mortgage rates. While monthly mortgage costs are beginning to ease, saving for a deposit remains a major challenge, especially for renters facing high monthly rents and rising living costs.

That said, there are some genuine positives for first-time buyers this year. There is now a range of lenders offering 95% loan-to-value (LTV) mortgages, giving buyers with smaller deposits more options than they’ve had in recent years. Combined with the expectation of further base rate cuts and modest wage growth, borrowing is starting to feel more achievable.

There’s also growing evidence that demand is there - first-time buyers accounted for a third of all house purchases in 2025, a record high. Many first-time buyers have simply been waiting on the sidelines - and as soon as affordability improves enough, they’re ready to move. 

There’s also growing talk of policy reform. Regulators and lenders are exploring whether mortgage affordability rules could be loosened slightly, particularly for groups like first-time buyers and the self-employed. Changes to stress testing or income assessments could make a real difference.

Alongside this, there are renewed calls to rethink stamp duty thresholds and upfront buying costs, which often hit first-time buyers hardest just as they’re trying to get started.

If you want to make home happen this year, but don’t know where to start, you’re in the right place. Check out our First Time Buyer hub to get started.

House prices cool, with sluggish growth expected over 2026

House price momentum slowed at the close of 2025, with the average UK house prices dipping by 0.6% in December 2025, the lowest level in six months. Annual growth was also sluggish, standing at +0.3%, the weakest in a year. But this does vary by location - Northern Ireland and parts of northern England saw modest gains, while London saw prices fall slightly.

Despite the recent price growth slow down, the outlook for the rest of 2026 is more rosy. House prices are expected to see modest growth in 2026, around 1-4%. Plus, the Renters’ Rights Act coming into effect could see some landlords selling up, bringing more properties to market. If this is coupled with slightly lower mortgage costs, we could see gradual affordability improvements over the year, helping more buyers afford to get on the ladder or move up it.

If you’re hoping to sell your home in 2026, this may sound like bad news. While house prices may not increase as much as you were hoping for, more buyers entering the market could make for a speedy sale. The uncertainty leading up to the Autumn Budget led many buyers to adopt a “wait and see” stance, impacting agreed sales volumes and encouraging cautious pricing. 

With the Budget behind us and mortgage rates easing, we could see more buyers take the step into house hunting. Keep in mind that if you are reluctant to lower asking prices, you could find yourself facing longer market time for your property while other properties priced more competitively get snapped up.

Government issues major update on Lifetime ISAs 

The government has finally provided some clarity on what’s going to happen next with Lifetime ISAs. Even though it seems the government is planning to eventually replace Lifetime ISAs with a new, simpler product aimed at first-time buyers, there’s no immediate cut-off date.

If you already have a Lifetime ISA, you can continue to contribute to it indefinitely – whether you’re saving for a first home or retirement. Nothing stops you from opening one either before the new product launches, as long as you’re eligible.

Officials have confirmed that they’ll run a consultation early in 2026 about a new, simpler ISA for first-time buyers that’s expected to replace the Lifetime ISA down the line. The idea is to make things more flexible – particularly by getting rid of the withdrawal penalty that frustrates a lot of savers if they use their cash for anything other than a house or retirement.

A big reason behind possible changes is that many savers lose a chunk of their own money if they breach the rules (like withdrawing for a non-qualifying reason). The government wants to fix that in the new product, but it raises the question of why they don’t just fix it in the current Lifetime ISA instead…

Saving rates start to fall following the base rate cut

Since the Bank of England announced a cut to its base rate of interest on the 18th December, savings account providers have begun to drop their interest rates. This is to be expected; when the base rate falls, savings providers tend to reduce their own interest rates. But some providers have reduced their rates more than others - making it even more important to shop around for the best rate for your savings.

What should you do? Our top tips

Whether you’re thinking about buying, remortgaging or just planning ahead, here’s a clear checklist to help you make confident decisions in the current market:

• If you’re a home buyer: Lower rates and improved affordability are opening the door for buyers in 2026. Understand your true budget early, and get a Mortgage in Principle so you’re ready to move when the right property appears. Get one here.
• If you’re remortgaging: Mortgage rates are starting to ease, but SVRs remain high. If your deal is ending soon, review your options now to avoid drifting onto a more expensive rate - even small changes could cut your monthly payments! See your options with a free Tembo plan.
• If you’re a saver: Savings rates tend to fall quickly after base rate cuts. Review your accounts, consider fixing if you want certainty, and don’t let competitive saving rates quietly slip away. If you have a Lifetime ISA, or are thinking of opening one, be assured that nothing is changing for now.

What’s next for the market?

Mortgage rates are likely to drift down rather than drop sharply in the months ahead, as lenders compete for business but stay cautious. Fixed rates should keep improving slowly, especially if a base rate cut becomes more likely as 2026 goes on. 

Savings rates, on the other hand, are likely to edge lower, especially on easy-access accounts. Fixed-term savings may hold up a bit better for now, but overall, it’s a reminder that savers may need to switch to more competitive accounts to keep their money working hard.

Check back in our latest articles to keep informed on the latest movements. Or discover how you could save faster, or buy sooner, through our award-winning savings app and mortgage service.

*Full terms and conditions of our rate checking service can be found here.