What 2026 could hold for the UK housing market

For many UK households, 2025 marked the beginning of the end of the mortgage rate shocks of the previous year. And while that did not mean a return to cheap borrowing, the easing of interest rates was clearly visible over the course of the year.

The Bank of England’s base rate^[1], a key determinant of mortgage pricing, fell from 4.75% in January 2025 to 3.75% in December.

And mortgage rates followed suit. For a typical first-time buyer (a two-year fixed deal with a 10% deposit) rates fell from around 5.35% in January to about 4.49% by the end of the year^[2].

House prices, meanwhile, did not surge, with annual growth slowed to around 0.7%^[3]. Overall, 2025 looked more like a period of cooling and stabilisation – certainly one of the calmer years for the housing market in the past decade.

And that calmness could be about to continue. Most forecasts suggest^[4] that the Bank of England base rate could fall further, potentially towards 3.25% by the end of 2026.

But the December 2025 decision is a useful reality check. While the Bank cut rates to 3.75%, it was by a narrow vote^[5] (five for, four against). That close split shows the Bank is still cautious about cutting interest rates too quickly.

This matters because mortgage rates do not simply track the base rate. Fixed-rate mortgages are priced mainly off what markets expect to happen over the next few years.

When markets start to anticipate cuts, lenders can reduce fixed rates before the Bank acts^[6]. And when those expected cuts are already priced in, there is less room for dramatic further falls.

That helps explain why borrowers may not see mortgage rates drop as far as they hope even if the base rate continues edging down. Those drops are often priced in early, and the remaining reductions can be slower and smaller.

Given the direction of travel, a reasonable expectation is that mortgage rates in 2026 will be a little lower, and a little less volatile.

By the end of 2026, if the base rate settles near the lower end of expectations at around 3.25%, mortgage rates are more likely to stabilise rather than fall sharply. Best deals might dip just below 3.5%, but most borrowers are still likely to face rates in the 3.75–4% range.

Competition between lenders may help at the margins, but bigger falls would require clearer evidence that inflation pressures are easing sustainably, allowing the Bank to keep cutting rates beyond 2026.

If mortgage rates fall modestly and become more predictable, research suggests that the housing market typically responds with improved confidence^[7]. More people may feel they are able to move, and buyers are less likely to wait around while they wait for clarity.

But the general expectation for UK house prices in 2026 is modest growth rather than a runaway market. The Nationwide^[9] building society expects annual house price growth to remain broadly in the 2% to 4% range. Halifax’s^[10] predictions – of 1% to 3% – are more cautious.

Overall then, 2026 is likely to be a year of stabilisation with mortgage rates slightly lower, but not a return to the ultra-low rates of 2010s. But for households, the year should feel calmer and more predictable, with fewer mortgage shocks, supported by gradually improving affordability.

That said, borrowing is unlikely to feel cheap. And it is important not to assume that a falling base rate automatically guarantees cheaper mortgages, as much of that expectation may already be priced in.

For remortgagers, 2026 may bring fewer surprises, but it will still reward preparation. Households coming off very low fixed rates should start shopping early, compare product transfers with the open market, and pay attention to total costs, not just the headline rate.

For first-time buyers, 2026 may be not the worst time to buy. When rates stabilise and affordability improves gradually, planning becomes easier. But they should still be cautious about overstretching. A slightly cheaper mortgage does not necessarily offset high prices and transaction costs – or the ongoing cost-of-living pressures that many households face.

References

1. ^{^} base rate (theconversation.com)
2. ^{^} end of the year (www.bankofengland.co.uk)
3. ^{^} annual growth slowed to around 0.7% (www.halifax.co.uk)
4. ^{^} Most forecasts suggest (www.reuters.com)
5. ^{^} narrow vote (www.bankofengland.co.uk)
6. ^{^} before the Bank acts (uk.finance.yahoo.com)
7. ^{^} improved confidence (www.sciencedirect.com)
8. ^{^} Sven Hansche/Shutterstock (www.shutterstock.com)
9. ^{^} Nationwide (www.nationwide.co.uk)
10. ^{^} Halifax’s (thenegotiator.co.uk)