Lower mortgage rates to boost housing market

Lower mortgage rates could support house price growth this year, according to new research.

Data from Moneyfactscompare.co.uk suggests the mortgage market may be at its highest point in five years following Liz Truss’ mini-budget in 2022.

With rates easing, borrowing is becoming more affordable, potentially encouraging more buyers to return to the market.

Mortgage landscape in 2026 may be more forgiving

According to the findings, at the start of 2026, a two-year fixed mortgage at 90% Loan-to-Value (LTV) had an interest rate of 5.09%, which is expected to fall to 4.80% by the end of the year.

The organisation also predicts another Bank of England base rate cut this year from 3.75% to 3.25%.

Adam French, head of news at Moneyfactscompare.co.uk, said: “After more than three years of higher borrowing costs, even small cuts in mortgage rates can have a meaningful effect on buyer behaviour.

“With markets expecting at least one further 0.25 percentage point cut to the Base Rate, the mortgage landscape in 2026 may be more forgiving than at any point since 2021.

“Our modelling suggests that easing rates may make modest house price growth possible without stretching affordability further, an important shift after the intense affordability squeeze of 2022–2025.”

First-time buyers still face steepest challenges

In 2025, typical first-time buyers borrowed around £236,000, with the average property value being approximately £310,000. This equates to an average loan-to-value (LTV) ratio of 78%, meaning they typically had a deposit of 22%.

For homemovers, the average borrowing was around £251,000 on properties valued at about £466,000. This represents an average LTV of 58%, with homeowners contributing roughly 42% equity.

Mr French said: “First-time buyers still face the steepest challenges, with many stretching to higher LTV deals given the need to save a considerable deposit. In contrast remortgage borrowers, who typically hold far more equity and are unlikely to need to borrow more, stand to benefit most from easing rates.”

He adds: “Any expectation of more substantial growth should be tempered by the fact that borrowing costs remain well above the ultra-low levels of the 2010s. Even with rate cuts, affordability remains tight.

“Lower rates remove a headwind rather than create a tailwind, making modest house price growth possible, but not guaranteeing it. Unless rates fall further or incomes rise faster than expected the headroom for growth is likely to remain tight.”

Easing mortgage rates are welcome news

Mary-Lou Press, NAEA Propertymark President, said lower mortgage rates will help first-time buyers.

She said: “Easing mortgage rates are welcome news after several years of affordability pressures and could support modest house price growth without significantly worsening buyer affordability.

“While lower rates may help first-time buyers offset rising prices, high deposits and stretched incomes remain major barriers for many. Home movers and remortgage borrowers, who typically hold more equity, are better placed to benefit.

“Lower rates remove a headwind rather than transform the market, and lasting improvements to affordability will depend on stronger wage growth and increased housing supply.”