Moneyfacts analysed the scenario of a 25 basis point cut to the base rate and 2.5% annual house price growth, as predicted by the Office for Budget Responsibility (OBR).
It suggested that a first-time buyer getting a two-year fixed mortgage at 80% loan to value (LTV) priced at 4.8% on 1 January would need to borrow £236,000. This would give them a monthly mortgage repayment of £1,352 per month.
Assuming the average rate for the same mortgage falls to 4.5% by the end of the year, considering house price growth, the same first-time buyer would need to borrow £241,900, giving them a monthly repayment of £1,345. This would be a difference of just £13.
Meanwhile, a homemover with a 60% LTV mortgage at a rate of 4.28% would need a loan of £251,000, giving them a monthly repayment of £1,364.
If the average rate falls to 4% by the end of the year, the same homemover would be only £8 better off with a loan of £257,275 and a monthly repayment of £1,358.
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A homeowner remortgaging a £215,000 loan with a two-year fix at 60% LTV would pay £1,168 per month at a rate of 4.28% at the start of the year. Their monthly repayment would fall by only £33 by the end of the year, if the rate declines to 4%.
|
Product/scenario |
1 Jan 2026 |
End of 2026 |
|
90% LTV two-year fix |
5.09% |
4.8% |
|
80% LTV two-year fix |
4.8% |
4.5% |
|
60% LTV two-year fix |
4.28% |
4% |
|
First-time buyer at 80% LTV |
Borrow £236,000 → £1,352 per month |
Borrow £241,900 → £1,345 per month |
|
Homemover at 60% LTV |
Borrow £251,000 → £1,364 per month |
Borrow £257,275 → £1,358 per month |
|
Remortgage at 60% LTV |
Borrow £215,000 → £1,168 per month |
Borrow £215,000 → £1,135 per month |
Rising house prices without impacting affordability
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 2022-25.”
Borrowers still benefit from lower rates
French added: “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.
“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.”
Mary-Lou Press, NAEA Propertymark’s president, said: “Easing mortgage rates will be 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. Homemovers 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.”
