For borrowers preparing to seek new mortgage deals, the first quarter of 2026 has laid bare just how rapidly market conditions can change, switching in this instance from encouraging to erratic.
It was only last month that various lenders were competing to offer attractive terms, with companies having priced in the potential for upcoming cuts to the Bank of England’s base rate.
But it is a drastically different story today, with hundreds of residential mortgage products withdrawn in March, in part as the Iran war impacts the UK economy and also due to rising swap rates as speculation over interest rate hikes grew.
Ryan Brailsford, director of sales at lender Pepper Money says: “Rising energy prices and geopolitical tensions have pushed up swap rates, which lenders use to price fixed-rate mortgages, and a number of high street lenders have already responded by increasing rates.” According to Moneyfacts, average mortgage rates have climbed above 5 per cent in March, marking the highest figure in seven months and currently hovering near 5.5 per cent approaching April.
With tensions in the Middle East contributing to what Craig Fish, the founder of broker Lodestone Mortgages calls the “most unpredictable forecasting environments in recent years”, there are various directions costs could go in, making forward planning hard for consumers.
So what do property and lending experts think the outlook could look like for mortgage rates for homeowners and first-time buyers in the second and third quarters of 2026? Is there any advice for households?
Rates debates and new deals ahead
The Financial Conduct Authority estimates some one million fixed rate mortgage deals are due to expire between April 1 and the end of September.
This will likely see a significant amount of new agreements sought. In addition, those stepping on the property ladder for the first time will also be shopping for loans.
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The Bank of England’s Bank Rate is currently 3.75 per cent, and, prior to the latest conflict in the Middle East, forecasters had pencilled in an interest rate cut for as soon as March. But that changed to a vote to hold as rising oil prices brings the threat of incoming higher inflation.
Jonathan Samuels, chief executive of specialist lender Octane Capital, says: “Mortgage rates can shift far more quickly than many borrowers realise because they are influenced not just by the Bank of England base rate, but by wider economic sentiment and global events.”
The table below from Octane Capital sums up an estimated comparison of base rate and subsequent mortgage rate scenarios if the Iran conflict persists through to summer and brings about an interest rate hike, or ends sooner allowing a rate cut to come later in the year.
Fish at Lodestone Mortgages says: “If energy prices remain elevated through the coming months, inflation will prove stickier than the Bank of England had hoped, reducing both the room and appetite for further base rate cuts.”
However, he adds that if the conflict stabilises, “the underlying UK picture of weak growth and rising unemployment still gives the MPC good reason to cut, and reductions by September remains plausible”.
Looking ahead in 2026
As at 4 March, the average two-year fixed rate mortgage across all LTVs was 4.82 per cent and the average five-year fix for all LTVs was 4.94 per cent, Moneyfacts data shows.
To give a snapshot of what parts of the industry currently think mortgage rates could look like by the end of the third quarter, so around September, The Independent asked five residential and lending experts for their opinion.
By the end of September the average two-year fixed rate could be be 4.7 per cent and the five year rate could the same, based on the mean figures from forecasts provided by representatives from Jackson-Stops, JLL, Lodestone Mortgages, Pepper Money and SPF Private Clients.
Respondents stressed that forecasts were tricky to make, and some made predictions that don’t assume a prolonged escalation in the Middle East.
Nick Leeming, chairman of estate agents Jackson-Stops, says: “Whilst we had anticipated small ratings reductions throughout 2026, the international conflict and geopolitical environment have changed radically, as such any predictions are very difficult.”
Looking at the longer term picture, Marcus Dixon, director of UK residential research at property agent JLL says current rates, even with recent increases, “remain more competitive than borrowers could secure this time last year, which will, we expect, bring more buyers to the market in 2026”.
Sharief Ibrahim, head of residential at real estate advisor CBRE, says: “The Bank of England may find it harder to start easing rates because of the risks around inflation. That said, our latest residential forecasts suggest a relatively steady outlook for mortgages over the next 18 months. None of this points to dramatic swings, but it does indicate that while rate cuts may not come as quickly as some hoped, the outlook for borrowers is gradually and quietly improving.”
What should consumers consider doing?
Paula Higgins, chief executive of property advice website HomeOwners Alliance says it is sensible to work with a mortgage broker who can keep abreast of the market for customers.
The broker “can help you find the right deal for you, secure a rate in advance and keep it under review in case a better option appears before you complete”.
Mark Harris, chief executive of mortgage broker SPF Private Clients says we could see lenders increase mortgage rates to reflect higher Swaps if they continue to rise, “so borrowers planning to take out a fixed-rate mortgage in the next few weeks or months may wish to secure a product now”.
Harris adds: “This will give you peace of mind, and if rates fall by the time you come to take out the mortgage, you should be able to switch onto a cheaper deal at that time. However, if rates have risen, you will be glad you took action when you did.”
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