Will Interest Rates Go Down in 2026? Forecasts & Mortgage Advice

If you’re trying to figure out whether borrowing costs will drop in 2026, you’re not alone. Millions of UK households are watching their mortgage renewal dates approach while central banks plot an unsteady course through geopolitical turbulence. The good news is that the Bank of England’s base rate has fallen from its 5.25% peak in August 2023 to 3.75% as of April 2026. The complication is that external shocks — including the conflict in Iran — have delayed further cuts and pushed swap rates back up, keeping fixed mortgage rates higher than many borrowers hoped. Here’s what the data actually shows, and what it means for your next mortgage decision.

BoE base rate: 3.75% · Average 2-year fixed mortgage rate: 5.68% (June 2026) · Deals maturing in 2026: 1.8 million · Projected UK gross mortgage lending: £300 billion

Will Interest Rates Go Down in 2026?

The honest answer is: probably not by much, and not soon enough for the 1.8 million households whose fixed-rate deals expire this year. The Bank of England cut its base rate from 4.75% at the start of 2025 to 3.75% by December 2025 — a meaningful reduction that marked the beginning of an easing cycle. However, the pace of cuts has slowed. The Monetary Policy Committee voted in April 2026 to hold the base rate at 3.75%, and analysts are divided about what happens next.

What do forecasters actually say?

Oxford Economics expects the Bank of England to keep interest rates unchanged until 2027, according to analysis published by MoneyWeek. That view contrasts with Pantheon Macroeconomics, which forecasts two rate hikes in 2026 followed by three cuts in 2027 — a more hawkish scenario that would push mortgage costs higher before relief arrives.

The divergence reflects genuine uncertainty about inflation persistence and external shocks. MoneyWeek reports that swap rates surged after the Iran conflict, pushing UK fixed-rate mortgage costs back up in early 2026 despite the prior fall in the base rate. money.co.uk notes that most analysts anticipate further BoE rate cuts in 2026, but the Bank has stressed that policy is not on a preset path.

The International Monetary Fund weighed in on May 18 to suggest the Bank of England may not need to raise rates further to offset higher energy costs — a cautiously supportive signal for borrowers hoping for a hold rather than a hike.

How does the geopolitical situation affect the outlook?

Global forces can push UK mortgage rates up or down quickly, regardless of domestic inflation trends. HomeOwners Alliance emphasises that energy prices and US monetary policy can disrupt any downward trend in 2026. The Iran conflict has already done precisely that, with MoneyWeek reporting that swap rates spiked and pushed fixed mortgage costs back higher in the early months of 2026.

Mortgage One Finance tracks SONIA futures to gauge market expectations for the BoE base rate path, noting that traders see only modest moves from current levels — neither a sharp descent to 3% nor a rapid climb back to 5.25%.

What Are Interest Rate Predictions for the Next 5 Years?

Five-year forecasts come with wide confidence intervals, but two official projections anchor the discussion. The Office for Budget Responsibility’s November 2025 forecast — cited by HomeOwners Alliance — expects average UK mortgage interest rates to rise from about 3.7% in 2024 to around 5% by 2029. That projection suggests structurally higher borrowing costs for years, not a quick return to pre-pandemic norms.

UK 5-year forecast from official and independent sources

Private Finance observes that financial markets are pricing in a BoE base-rate “floor” around 3.5% by January 2026, suggesting limited room for further cuts from the current 3.75% level. Tembo Money predicts that mortgage rates are likely to remain steady or increase slightly during 2026, given geopolitical risks and sticky inflation.

The bottom line across multiple forecasts: UK rates are expected to fall gradually over five years, but external shocks can interrupt the easing cycle at any point. Mortgage adviser Sam Fox puts it plainly — typical mortgage rates may start with a “3” rather than a “4” over the medium term if easing continues, but a return to the ultra-low 0.1% base-rate era seems unlikely within this cycle.

Are current forecasts pointing to 3% within 5 years?

For mortgage rates to reach 3% again, the Bank of England base rate would need to fall below 3%, and fixed-rate swap markets would need to price in sustained lower rates. HomeOwners Alliance notes that global forces — energy prices, US monetary policy, geopolitical conflicts — can quickly reverse any progress on rates. Given current uncertainty, a return to 3% mortgage rates within five years is possible but not probable.

Should I Fix for 2 or 5 Years Now?

This is the practical question behind all the forecasts — and the answer depends on your risk tolerance, how long you’ve owned your property, and whether you believe the easing cycle will continue. HomeOwners Alliance data shows the average 2-year fixed mortgage rate fell from 5.93% in June 2024 to 5.68% in June 2026 — modest easing rather than a sharp drop.

Benefits of a 2-year fix vs 5-year fix in a falling rate environment

A 2-year fix offers flexibility: if rates fall further, you can refinance at a better deal in 2028. The trade-off is that if the BoE holds or raises rates, your renewal in 2028 could face higher costs. Tembo Money notes that at the time of its 2026 forecast, the lowest 2-year fixed rate available was about 4.55%.

A 5-year fix locks in certainty for longer. As of June 2026, one of the lowest 5-year fixed-rate mortgages in the UK is around 4.48% — according to HomeOwners Alliance — which could work out cheaper overall if rates rise during a 2-year term.

Rate comparison: current average 2-year vs 5-year deals

On a £200,000 30-year repayment mortgage at 4.48% (the lowest 5-year fix), monthly payments come to roughly £1,000 — a baseline that shows how far the market remains from the sub-1% deals of the 2010s, but also how much has improved from the 6%+ peaks of 2023–24.

Is 4.5% a Good Mortgage Rate?

Compared to the 2023 peaks, yes — 4.5% is well below the 6%+ rates seen during the worst of the post-pandemic tightening cycle. Compared to the 2019–2021 average of around 2–3%, it’s still elevated. HomeOwners Alliance consumer research found that about 23% of Britons expect mortgage rates to rise and roughly 25% expect them to fall — illustrating that public perception is genuinely split.

Comparing 4.5% to historical averages and current market

The pre-pandemic era offered some 2-year fixed rates below 1%, and the average tracker mortgage tracked the base rate directly at sub-1% levels. At 4.5%, a typical borrower pays roughly four to five times the interest rate of a pre-2021 borrower on the same loan amount. That gap is why the OBR’s projection of ~5% average mortgage rates by 2029 feels painful even after the base rate falls to 3.75%.

What makes 4.5% reasonable in 2026 context is its position relative to the 5.68% average 2-year fixed rate. If you can secure 4.5% or below, you’re beating the market average — a meaningful advantage when refinancing a £200,000+ mortgage.

Will Mortgage Rates Ever Go to 3% Again?

The conditions for 3% mortgage rates are technically possible — sustained inflation below 2%, economic weakness prompting aggressive BoE cuts, and stable geopolitical conditions. The probability within five years is low given current trajectories. Tembo Money cautions that mortgage rates are unlikely to fall significantly in 2026 or even 2027, and may instead plateau at current levels or edge up.

What would need to happen for rates to reach 3%?

Three conditions would need to align: the BoE base rate falling below 3%, swap markets pricing in sustained low rates, and lender margins compressing from their post-2023 elevated levels. The Iran conflict has already demonstrated how quickly swap rates can spike, reversing months of progress in a matter of days.

Given the OBR’s projection of ~5% average mortgage rates by 2029, even optimists should plan for a “3-handle” mortgage rate — if it arrives — occurring after 2028 at the earliest.

UK Interest Rate Forecast for the Next 5 Years

A single detailed quarterly BoE rate path through 2026 doesn’t exist in the public domain. Instead, analysts offer high-level scenarios that should inform, not dictate, your planning. Private Finance reports that the BoE cut the base rate from 4.75% at the start of 2025 to 3.75% by December 2025, describing 2025 as the beginning of a gradual easing cycle. Mortgage One Finance notes the next MPC decision is scheduled for 18 June 2026.

Consensus from Bank of England and major UK banks

The consensus view holds that the BoE base rate will drift lower over five years — but slowly, with pauses and possible reversals if inflation resurfaces or external shocks emerge. MoneyWeek reports the IMF commented on May 18 that the BoE may not need to raise rates further to offset higher energy costs, framing external pressure as manageable rather than alarming.

What does the market imply via swap rates?

Swap markets suggest the BoE base rate will remain in the 3.5–4% range through 2027, with limited upside above 4.5% and limited downside below 3%. Rettie reports that UK mortgage approvals were around 65,000 per month by October 2025, indicating increasing housing market activity as rate stability returned. That level of activity suggests the market has largely adapted to the post-2023 rate environment.

Projected Interest Rates in 5 Years: Ireland and Global View

The UK outlook sits within a broader global context where central banks are navigating similar pressures. Rettie notes that affordability improved through 2025 as swap rates stabilised, BoE communication became clearer, and inflation moved closer to its 2% target — creating a more predictable mortgage pricing environment. The pattern is not uniquely British; similar adjustments are underway across the euro area and Australia.

Irish retail interest rate trends (March 2026 data)

Irish retail mortgage rates averaged 5.09% in March 2026, down 84 basis points year-on-year, according to data from the Central Bank of Ireland. This rate tracks the ECB’s main refinancing operations rate, which affects Irish borrowers more directly than the BoE base rate. Irish rates remain elevated compared to the ECB’s policy rate, reflecting the slower pass-through typical in the Irish market.

ECB rate path implications for Ireland

The ECB’s rate-cutting cycle is expected to continue through 2026, gradually lowering the main refinancing rate. However, Irish retail mortgage rates historically lag ECB moves by several months, meaning Irish borrowers may not feel relief until late 2026 or 2027. The Irish market’s dependence on ECB policy creates a two-speed dynamic: Dublin-based borrowers face a similar structural challenge to UK households but via a different central bank mechanism.

Timeline: UK Interest Rate Path

Four distinct phases define the current cycle:

The Bank of England’s Monetary Policy Committee has stressed that policy is not on a preset path and will depend on economic data. This means borrowers should plan for multiple scenarios, not a single rate trajectory. The conflict in Iran has demonstrated how quickly market conditions can shift — any forecast should be treated as conditional.

— money.co.uk (Financial news and analysis)

Fixed mortgage rates are driven mainly by market expectations of future interest rates, via swap markets, rather than moving one-for-one with the current Bank of England base rate. This is why swap rate movements — triggered by geopolitical events like the Iran conflict — can push mortgage costs higher even when the base rate stays flat.

— HomeOwners Alliance (Consumer mortgage guidance)

UK Finance expects around 1.8 million UK fixed-rate mortgage deals to mature in 2026. These households will need to refinance in a still-elevated interest rate environment, facing a significant payment step-up from their expired low-rate deals — the defining challenge of this refinancing wave.

— UK Finance (Industry trade body mortgage forecast)

The next twelve months will be a holding pattern for most UK borrowers — not a dramatic fall, not a sharp rise, but a grinding wait as the Bank of England watches global events and domestic inflation data before deciding whether to cut further. The 1.8 million households refinancing in 2026 will pay more than they did on their expired deals, but less than those who locked in at the 2023 peaks. That structural reality shapes the decision facing every borrower approaching renewal.

Related reading: **Mortgage rate forecast** · **Bank of England base rate**

For a deeper look at the timing of cuts, see our analysis of when interest rates will go down and how it affects mortgage planning.

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