MORTGAGE RATES IN 2026: IS THE TIDE TURNING?
We recently tuned into Nationwide’s live economic update with the society’s chief economist, Robert Gardner, and there was plenty in it worth passing on if you have a mortgage decision on the horizon. You may have seen the headlines about a memorandum of understanding between the United States and Iran. It might feel a long way from your monthly repayment, but the link is closer than you would think.
HOW EVENTS IN THE MIDDLE EAST REACH YOUR MORTGAGE
The conflict earlier this year disrupted global energy markets. Around a fifth of the world’s oil normally passes through the Strait of Hormuz, so when shipping through it was affected, energy prices climbed, inflation expectations rose, and swap rates spiked. Swap rates are the wholesale rates lenders use to price fixed-rate mortgages, so when they rise, fixed deals tend to get more expensive. That is the chain that connects a distant conflict to what you pay each month.
SO WHAT’S ACTUALLY CHANGED?
According to Nationwide’s latest analysis, oil prices have already fallen back close to pre-conflict levels since the memorandum was signed, easing some of the upward pressure on rates. Gardner notes that swap rates have started to come down from their recent peaks, and that is beginning to feed through to fixed-rate pricing. It does not mean rates drop overnight, but the direction of travel has improved.
Markets had been pricing in as many as three and a half to four Bank Rate rises over the next 12 to 18 months. At the time of the update, that had been scaled back to roughly one rise over the next six to nine months, followed by a hold. Bank Rate currently sits at 3.75%. Further out, if the energy shock keeps fading and inflation cools as expected, rate cuts could return to the agenda, though that reflects the economic outlook rather than what markets are pricing in today.
IS INFLATION REALLY UNDER CONTROL?
This is the question the Bank of England is weighing too. At its June meeting the Bank held Bank Rate at 3.75%, but two of its nine committee members voted to raise it, so a further rise has not been ruled out as a guard against inflation becoming embedded in the wider economy.
That said, Gardner points to several encouraging signs:
- Wage growth has normalised, with private sector pay running at around 3%, broadly consistent with the Bank’s 2% inflation target over the medium term
- Recent inflation readings have come in lower than expected, suggesting the underlying downward trend has continued despite the energy shock
- The labour market has loosened. Unemployment recently touched 5% before easing back to 4.9%, still above most estimates of the long-run equilibrium rate of around 4.5%. That points to significantly more slack in the labour market than at the time of the Russian invasion of Ukraine, when there was just one unemployed person for every job vacancy, compared to around two and a half today. More slack makes it harder for wage-driven inflation to take hold
In short, the conditions that would force the Bank to keep raising rates aggressively look less likely than they did earlier in the year. Broadly, that is positive news for borrowers.
WHAT THE HOUSING MARKET LOOKS LIKE RIGHT NOW
The market did soften through May and June. Mortgage approvals for house purchases fell from around 66,000 in April to around 56,000 in May, according to Bank of England figures, while new buyer enquiries dropped to their lowest level since late 2023. None of that is a surprise: higher swap rates mean higher mortgage rates, and higher rates cool demand.
There are reasons for cautious optimism, though. Nationwide’s house price index showed prices were broadly flat in June rather than falling, with annual growth actually ticking back up to 2.2%. Supply and demand are reasonably balanced, with the number of homes on the market at its highest in about a decade while buyer demand has held up. And affordability has been improving, since earnings growth has consistently outpaced house price growth over the past couple of years.
Lending criteria has opened up as well. Nationwide notes that higher loan-to-value (85% and above) and higher loan-to-income lending are both at multi-year highs, which is helping first-time buyers onto the ladder.
For much of Scotland and the North of England, affordability remains noticeably better than the UK average, with first-time buyers often borrowing below average regional incomes. That is a very different picture from London and the South East.
WHAT IF YOUR DEAL IS ENDING SOON?
If you are coming off a five-year fix in the next 12 to 24 months, you are likely still facing a meaningful jump in your monthly payment, even with rates easing. People rolling off two-year fixes are seeing a much smaller change, and some are moving onto lower rates than before.
The outlook is more positive than it was even a few months ago, but there is still real uncertainty, and waiting for the “perfect” moment to lock in rarely pays off. If your deal ends within the next six months, it is worth starting to look now. Many lenders let you secure a rate up to six months before your current deal ends, particularly if you are switching to a new lender, so you can lock something in and still move to a better deal if one comes along.
WHAT WE WOULD SUGGEST
Every situation is different, but a few things tend to hold true:
- Know when your current deal ends, so it does not roll onto your lender’s standard variable rate, which is almost always more expensive
- Get advice early. The sooner you speak to a broker, the more options you have, and usually the better the outcome
- Do not assume your existing lender is the answer. As whole-of-market brokers, we compare thousands of deals to find the one that fits you
The bigger economic picture is complicated, but on mortgage rates the mood is more hopeful than it was earlier this year. If you would like a clear, jargon free look at where you stand, drop us a message or give us a call. We genuinely love talking mortgages, and we are always happy to help.
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IMPORTANT INFORMATION
Your home may be repossessed if you do not keep up repayments on your mortgage. Mortgage Advice Brokerage is authorised and regulated by the Financial Conduct Authority (FCA: 479200). The information contained in this article is for guidance purposes only and does not constitute advice. Your individual circumstances will affect which mortgage products are available to you.
