Tembo Market Watch: June 2026

Key takeaways

• Stable inflation, which was a surprise to the market, has given the Bank of England breathing room to hold the base rate at its latest meeting. 
• For now, savings interest rates are likely to remain relatively stable until there’s movement on the base rate. But with inflation likely to rise over the summer, it’s crucial to ensure you’re earning a competitive rate on your cash.
• Mortgage rates have fallen in recent weeks as major lenders compete for business. Now, the lowest rate available across Tembo's panel of over 100 lenders is 3.96%*.
• Our data shows that mortgage affordability for first-time buyers improved in May, with repayments taking up a smaller share of buyers' incomes than the month before.
• A new £5,000 deposit mortgage is providing an alternative route onto the property ladder. 

Bank of England holds base rate for 6th month in a row

In a widely expected move, the Bank of England voted to hold the base rate at 3.75% for the 6th month in a row. The decision comes after the latest inflation figures, released yesterday, showed that it has stayed unexpectedly stable at 2.8%, thanks to food price rises falling to the slowest rate since December 2024. 

Experts were expecting it to rise to 3%, and are predicting it to keep increasing over the summer due to the impact of the ongoing conflict in the Middle East. However, the recent peace deal talks between the US and Iran mean that further increases over the coming months may be smaller than originally predicted.

The Bank is on a mission to get inflation down to 2%. With the conflict in the Middle East looking somewhat calmer, this could prevent inflation from rocketing skyward. But it won’t necessarily take a base rate rise entirely off the table, as inflation is still expected to go up over the next few months. 

The key takeaway is that for now, the Bank of England has no reason to increase the base rate any time soon and is more likely to continue its cautious “watch and wait” approach. This is a real shift in expectation, as only a few weeks ago, the market was forecasting two 0.25% base rate rises by the end of 2026.

What does this mean for you?

• Savers: A base rate hold typically means savings interest rates are likely to remain relatively stable for now, rather than rising or falling sharply. Savings providers can still adjust their savings rates, but may wait for clearer signals on which way interest rates will go before making significant changes. But that doesn’t mean your money should stay still. It’s important to regularly compare rates and ensure your cash savings continue to earn a competitive return. If they aren’t, consider switching!
• First-time buyers: A stable base rate is a positive for mortgage rates in that it brings some stability to the market. Plus, our own data suggest affordability is improving for first-time buyers. The average deposit fell to £37,375 in May, a reduction of more than £6,100 in just four months. Get ahead of the game and explore your options now instead of waiting for a “sign”.
• Home sellers: While affordability is improving, many buyers are holding off, and those in the market have choice on their side. Pricing realistically is crucial for a successful home sale. The mortgage rate on your next purchase may be higher than a few months ago, but the market is feeling more predictable. Check what mortgage deals you could be eligible for today without applying.
• Remortgagers: This is arguably where the stakes are highest right now. If your fixed-rate deal is ending soon, the most important thing you can do is act early. Rolling onto your lender's standard variable rate - currently averaging around 7.13% - could cost you significantly more than locking into a new fixed or tracker deal. Get started here

Top mortgage lenders cut rates, but rate reductions could be short-lived

Several of the UK's biggest lenders have moved to cut mortgage rates in recent weeks. 

Nationwide has reduced rates on its deals for existing customers coming to the end of their current mortgage by up to 0.12 percentage points. While Lloyds and Halifax have cut rates by up to 0.10% across their first-time buyer, home mover, and remortgage products. NatWest has reduced rates by up to 0.15% - after raising them by 0.2% last month. HSBC has also implemented reductions across its residential and buy-to-let mortgage range.

This is unsurprising as inflation fell to 2.8% in April, which gave lenders room to be more competitive on price in the lead-up to the Bank of England’s MPC meeting. Recent swap rate drops, which also influence fixed-rate mortgages, are also feeding through to the deals borrowers can now access.

Now, the average two-year fixed rate is down from 5.65% to 5.62%, and the average five-year fix is now down to 5.59% from 5.62%. Tracker rates are currently below fixed rate deals, with the lowest interest rate across our panel of over 100 lenders standing 3.96% for a two-year tracker rate deal. But remember, the rates you could be offered may be different from this.

*Sourced from Tembo's lender panel, based on a 60% LTV or lower. Rates accurate 16th June 2026, subject to change. For the latest rates, please use our Mortgage Comparison tool

Mortgage affordability is showing signs of improvement

Although it’s been a tricky few months when it comes to mortgage rates, there is other encouraging news. Our data showed that in May, average monthly mortgage payments fell to £951 while average buyer incomes increased over the same period. As a result, mortgage costs as a percentage of income fell from 23.0% to 21.8%. This provided some welcome breathing room for buyers already stretching their budgets to get onto the ladder.

Although affordability remains a challenge for many, this suggests that the financial pressure on buyers has eased.

First-time buyers are buying with £6,000 less saved than at the start of the year

Saving for a deposit remains one of the biggest challenges facing most aspiring homeowners. But our recent data suggests that the hurdle may be becoming more manageable. The average deposit required by first-time buyers fell to £37,375 in May, down from £43,512 at the start of the year. That's a reduction of more than £6,100 in just four months.

For buyers who have spent years watching deposit targets move further out of reach, this is a significant shift. While £37,000 is still a substantial sum, a smaller deposit requirement can bring homeownership months, or even years, closer. In our latest First Time Buyer Index report, we found that with a Lifetime ISA, aspiring homebuyers could cut a year off saving. 

Find out more about Lifetime ISAs here

New £5,000 deposit mortgage could change the game for first-time buyers

One of the biggest developments for first-time buyers this month is the launch of a £5,000 deposit mortgage from one of the UK's major banks. It's aimed at renters who can comfortably afford mortgage payments, but have struggled to save a deposit. Importantly, it’s available for homes worth up to £300,000.

This is significant because the scheme directly tackles what is one of the biggest barriers to homeownership: saving the upfront deposit. Our data shows the average first-time buyer deposit still sits at £37,375. This could lower the bar to entry substantially, helping aspiring buyers get onto the ladder years sooner.

However, the eligibility criteria are strict. Buyers will also need to pass the affordability and credit checks, so it won't be suitable for everyone. Nevertheless, it signals growing innovation from lenders looking to widen access to homeownership.

Specialist schemes unlock almost £122,000 more buying power

One of the most striking findings we found when comparing our data from May vs April is the gap between what buyers can borrow through standard affordability calculations and what may be possible when using affordability-boosting solutions.

The average first-time buyer could borrow £208,033 through a standard mortgage in May. However, buyers using affordability-boosting options could borrow on average £297,123. That's an additional borrowing power of more than £89,000. When you combine that with a deposit, it translates into over £122,000 of extra purchasing power when buying.

That can be the difference between being priced out of an area altogether and being able to buy in the area you love.

As house prices continue to outpace incomes in many parts of the UK, affordability solutions are becoming an increasingly important tool for buyers looking to bridge the gap between what they earn and what they can afford.

House prices remain sticky, but with significant differences between regions

Annual house price growth remains sluggish. The latest data from Halifax shows that prices fell 0.1% in May, the same decline recorded in April. Now, the average home costs £298,806, which is only an annual increase of 0.5%. Demand for new homes has slowed, and the number of new ones being built could follow suit, on the back of rising building costs due to higher fuel and energy prices. 

As ever, there are regional differences. In our latest First Time Buyer Index, we found that London remains unaffordable for many, while Glasgow comes out on top across the UK's 20 largest cities for overall attractiveness for first-time buyers. Cities like Manchester, Belfast, Bristol, Newcastle & Edinburgh all score well for affordability and lifestyle factors.

Lifetime ISAs under fire, but are still helping share a year off saving 

Lifetime ISAs have found themselves back in the headlines in recent months. There has been growing scrutiny over whether they remain fit for purpose for today's first-time buyers. Much of the debate has centred on the scheme's £450,000 property price cap. The threshold hasn’t changed since the product launched in 2017, despite significant house price growth since then.

Critics argue that some buyers are being forced to choose between paying the 25% withdrawal penalty or compromising on the type and location of home they can buy. While campaigners and industry voices have called for the cap to be reviewed or linked to inflation.

However, it's important not to lose sight of the value the Lifetime ISA continues to provide. For eligible first-time buyers, it remains one of the most generous savings products available, offering a 25% government bonus on contributions of up to £4,000 a year.

On average, saving into a Lifetime ISA cuts a year off saving for a first home deposit, allowing aspiring homeowners to purchase younger. Yes, the government’s rules surrounding Lifetime ISAs could be modernised to better reflect today's housing market. But the underlying principle remains as relevant as ever: rewarding long-term saving and helping first-time buyers build a deposit faster.

What should you do? Our top tips

For savers

• Keep your savings working hard by regularly reviewing rates on savings accounts and ISAs. A good rule of thumb is to ensure your savings interest rate is at least above inflation (currently 2.8%), but you could earn more than this. 
• If you’re saving for a home, continue building your deposit even if market conditions improve. A larger deposit could unlock better mortgage rates and lower monthly payments. If you're eligible, a Lifetime ISA is worth considering to benefit from the free 25% government bonus on your funds. Find out more here.

For home buyers

• If saving a deposit is your biggest hurdle, consider options such as a Lifetime ISA, shared ownership, or new low-deposit mortgage products to reach your target faster.
• Don't wait for the "perfect" time to buy. Explore your affordability now and understand what's possible with today's rates and schemes.
• Remember to look beyond standard affordability calculations. Specialist schemes may significantly increase your borrowing power.

For remortgagers

• Start reviewing your options at least six months before your current deal ends.
• If rates continue to fluctuate, securing a new rate early could protect you from future increases.
• Avoid rolling onto your lender's Standard Variable Rate, which is typically much more expensive than fixed or tracker alternatives.

The bottom line

There are signs that conditions are improving for buyers, with greater stability in the market, lower deposit requirements, improving affordability and increased lender competition. However, inflation remains a key risk, meaning today's mortgage deals may not be around forever. Whether you're buying, remortgaging or saving, taking action now is likely to put you in a stronger position than waiting on the sidelines.

Ready to take the next step?

Whether you're saving for your next milestone, buying your first home, moving house, remortgaging, or still building your deposit, understanding your options is the best place to start. Whatever stage you’re at, our award-winning savings & mortgage service can help.

*Sourced from Tembo's lender panel, based on a 60% LTV or lower. Rates accurate 29th May 2026, subject to change. For the latest rates, please use our Mortgage Comparison tool

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