What Next for Mortgages

Following the Bank of England’s Monetary Policy Committee (MPC) meeting yesterday, new research highlights the uncertainty among homeowners over how mortgage costs will evolve over the next 12 months. 

 

The survey shows homeowners are almost evenly split: 23% expect rates to rise, while 25% anticipate they will fall. Aspiring first-time buyers are notably more pessimistic, with nearly half (47%) expecting an increase, compared with just 13% who believe rates will fall. 

 

The findings suggest that while established homeowners may feel more confident or resigned, those entering the market are bracing for a potentially tougher financial environment. 

 

UK inflation fell to a 10-month low in January, helped by lower food and gas prices, prompting hopes of a potential rate cut by the Bank of England in March. However, gilt yields have surged in recent weeks due to geopolitical tensions in the Middle East, reversing some of the easing in borrowing costs and placing upward pressure on mortgage rates. 

 

Recent days have seen an unsettled mortgage market reminiscent of the aftermath of the September 2022 mini-Budget. Last week, hundreds of mortgage products were withdrawn as lenders reacted to rapidly rising swap rates. 

 

Just over a month ago, a split MPC vote suggested competitive mortgage deals might remain available – or even improve- if interest rates were cut later in 2026. At the time, the Bank held the base rate at 3.75% following a narrow 5–4 vote. Economists had forecast one to three cuts this year, potentially bringing the rate down to 3–3.5%. Four committee members even voted for an immediate reduction, hinting a cut could come sooner than expected, allowing borrowers to secure eye-catching fixed deals well below 4%. 

 

Since then, the outbreak of conflict in the Middle East has unsettled markets. UK mortgage rates have gone past 5% as lenders withdraw their best deals and The Moneyfacts Average Mortgage Rate has risen from 5.18% to 5.21%, reflecting a series of product withdrawals and selected fixed-rate increases of up to 0.2% from lenders. 

 

The MPC voted unanimously to hold base rates at 3.75% and the uncertainty often leads to homeowners waiting to see if rates improve. But if you’re due to re-mortgage this year, waiting can be an expensive mistake. Leave it too late and you risk falling onto your lender’s Standard Variable Rate, which is often around or above 7% and rarely good value. The safest approach is to start the process early – many lenders will allow you to lock in a rate months in advance and still switch if better deals appear before completion.