Mortgage Cost Drop Could Offset Climbing House Prices

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Mortgage Cost Drop Could Offset Climbing House Prices

Recent analysis by Moneyfacts indicates that a slight decrease in mortgage costs could potentially alleviate some pressures associated with rising house prices in 2026. The financial experts emphasize that while mortgage rates are expected to ease, this will likely result in modest growth in house prices without significantly improving affordability for first-time buyers and those looking to move.

Mortgage Rate Expectations and Price Growth

Market forecasts suggest that the Bank of England may decrease the Base Rate from 3.75% to 3.25% this year. Assuming a 2.5% annual increase in house prices is realized, as estimated by the Office for Budget Responsibility, first-time buyers could see changes in what they pay.

Financial Projections for First-Time Buyers

In January 2026, a first-time buyer borrowing £236,000 at an 80% loan-to-value (LTV) would pay approximately £1,352 monthly.
By the end of 2026, the same borrower could expect an increased borrowing capacity of £241,900, with a monthly payment slightly decreasing to £1,345.

Details for Remortgaging Buyers

Homeowners remortgaging at 60% LTV may initially borrow £215,000 in January 2026.
Monthly payments for this amount would start at £1,168, reducing to £1,135 by the end of the year.

Adam French, head of news at Moneyfacts, highlights that even minor reductions in mortgage costs can significantly influence buyer behavior. He notes that the anticipated adjustments to the Base Rate might create a more favorable mortgage environment in 2026 compared to the previous years.

Challenges for First-Time Buyers

Despite potential benefits from easing rates, challenges remain. Mary-Lou Press, president of NAEA Propertymark, points out that high deposit requirements and limited income continue to hinder many prospective buyers. While lower rates may assist first-time buyers in navigating rising prices, those with more equity, such as home movers and remortgage borrowers, are in a stronger position to capitalize on these changes.