Booming Mortgage Market Forecast as Lenders Cut Rates and Ease Rules — What It Means for UK Buyers

Britain's mortgage market is showing early signs of renewed activity at the start of 2026, as major lenders cut borrowing costs and relax affordability criteria following a shift in monetary policy.

The changes come after the Bank of England reduced its base rate to 3.75 per cent late last year, prompting banks and building societies to compete more aggressively for new lending after a prolonged slowdown in housing market activity.

While borrowing costs remain well above pre-pandemic levels, the combination of lower mortgage rates and more flexible lending rules is expected to improve access to finance for some buyers and remortgagers. However, industry bodies caution that affordability pressures and wider economic uncertainty are likely to limit the pace of any recovery.

Lenders Cut Mortgage Rates

Several high-street lenders moved early in January to reduce mortgage pricing. HSBC and Nationwide Building Society were among the first to announce cuts across selected fixed-rate and variable products, reflecting lower funding costs following the base rate reduction.

HSBC said its changes were designed to pass on lower wholesale funding costs to customers, while Nationwide reduced rates on a range of fixed-term deals as competition for new borrowers intensified. The moves come after a weak period for mortgage approvals, as higher interest rates and falling confidence weighed on demand through much of 2024 and 2025.

Barclays has also introduced new mortgage products priced below some competitors, adding to signs of a more competitive market as lenders seek to rebuild volumes amid slower house price growth.

Lending Rules Eased

Alongside rate cuts, lenders have begun adjusting affordability assessments following regulatory clarification issued by the Financial Conduct Authority. The guidance allows mortgage providers to assess affordability using product-specific interest rates rather than higher reversionary rates, giving firms greater flexibility in how much they are willing to lend.

The change has increased borrowing capacity for some applicants, particularly first-time buyers and remortgagers who were previously constrained by stricter stress-testing rules. However, lenders retain discretion over their criteria, meaning the impact varies depending on income, deposit size and household outgoings.

Market Outlook Remains Cautious

Forecasts published by UK Finance suggest mortgage lending could stabilise during 2026 after two years of decline, supported by lower interest rates and easing inflation.

The trade body has warned, however, that affordability remains stretched for many households, particularly in areas where house prices remain high relative to earnings. Real wage growth has slowed, while food, energy and housing costs continue to place pressure on disposable income.

Fixed-rate mortgages are also expected to adjust more gradually to base rate changes, meaning borrowers coming off older deals may still face higher repayments than those seen before interest rates began rising in 2022.

What It Means for Buyers

For prospective buyers, recent changes could translate into modestly lower monthly repayments and slightly increased borrowing capacity, depending on individual circumstances and lender criteria. Remortgagers may also find a wider range of competitive deals than were available during the past two years.

As lenders continue to recalibrate pricing and risk, the mortgage market is entering a more competitive phase, offering cautious optimism for borrowers after a prolonged period of constraint.