2026 UK interest rates

After several rounds of rate increases in the early 2020s to tame inflation, the Bank of England (BoE) started cutting its base rate late in 2025 — with a drop to 3.75% in December and markets pricing in further cuts into 2026.

Why Are Cuts Expected?

Inflation easing: UK inflation has been trending downward, putting less pressure on the BoE to keep rates high.
Market pricing: Financial markets generally expect more modest base rates through 2026, with some analysts forecasting cuts to 3.25–3.5% or even as low as 3% by year-end if inflation continues to cool.
Mortgage rates: While base rate cuts filter through slowly to fixed mortgage deals, lenders have already begun trimming some offers, and competition among brokers could lower borrowing costs further.

Here’s the key takeaway: The Bank of England is widely expected to move towards looser monetary policy in 2026, though the pace and scale of cuts will remain conditional on inflation trends.

🏡 What This Means for the UK Property Market

Interest rates are one of the strongest levers affecting property demand and prices — so expectations that they might ease in 2026 are significant.

1. Mortgage Affordability Could Improve

Lower base rates often mean cheaper mortgage borrowing costs, and if lenders pass on cuts, monthly repayments could fall or at least rise more slowly than they have in recent years.

This matters because:

Many homeowners will be remortgaging in 2026 as fixed deals expire, so even a modest base rate cut could benefit them.
First-time buyers may find a slightly lighter payment burden, supporting activity at the bottom end of the market.

However, affordability pressures — from living costs and wage growth that hasn’t surged massively — mean improvements could be gradual rather than dramatic.

2. House Prices: Modest Growth Likely

Forecasts suggest UK house prices are set to rise modestly in 2026, not surge. Most forecasts put growth in the 1–4% range, supported by easing rates and modest improvement in affordability.

This doesn’t signal a boom — just a shift away from the stagnation many saw through 2025.

3. Lettings and Buy-to-Let Dynamics

Interest rate cuts can also influence rental markets:

Landlords may feel cost relief if financing costs fall — potentially slowing disposals of buy-to-let properties.
Rental demand remains strong due to ongoing undersupply of homes, with rent growth expected to outpace house price growth in many areas.

So while rates soften, structural supply issues and demand for rental housing may sustain rental market pressure.

4. Regional Shifts & Market Segmentation

The effects of interest changes won’t play out uniformly. Some trends to watch:

Affordability improvements could spur activity in regions outside London where prices are lower.
High-value markets and prime central London may remain subdued if broader economic sentiment stays cautious — even with cheaper borrowing.

📊 A Balanced 2026 Property View

Taken together, here’s a snapshot of how 2026 could look:

✅ Interest rates — likely to trend downward, with expectations of further cuts as inflation stabilises.
✅ Mortgage costs — may ease modestly, benefiting new buyers and remortgagers.
✅ House prices — forecast to grow gently, not spike.
✅ Rentals — still backed by strong demand, possibly growing faster than property values.

📌 Final Thoughts

2026 isn’t shaping up to be a year of dramatic property market change — but rather one of cautious recovery and stability. Lower interest rates should provide some headroom for buyers and investors, but broader economic and policy factors (like tax changes and housing supply constraints) will continue to shape outcomes.

If you’re:

Buying: watch the timing of rate cuts and mortgage deals — mid-year could be sweet spot.
Selling: modest price rises mean pricing right remains key.
Investing: rental demand and specific regional opportunities matter more than headline price jumps.

Contact The Lettings Club today to discuss your investment strategy for 2026! You can reach us anytime on 0330 133 4919 by calling or sending us a WhatsApp!