Podcast: Will UK mortgage rates go up or down?

In this episode of the ESPC Property Show podcast, Paul and Megan are joined by David Lauder from ESPC Mortgages to discuss the latest mortgage market, what to expect from the Bank of England's base rate decision on 30th July, and how inflation, interest rates and changing mortgage products could affect homebuyers, homeowners and those coming to the end of a fixed-rate deal.

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Key Insights

1. Base rate remains on hold amid economic uncertainty

The Bank of England has kept the base rate at 3.75% since December, despite earlier expectations of multiple cuts this year. Ongoing global uncertainty, including conflicts affecting oil prices and inflation, has complicated the outlook, with inflation currently around 2.8% and expected to rise further due to pressures from wages and services. The Bank faces a difficult balancing act between supporting a weak economy through lower rates and controlling inflation, making a cautious “wait and see” approach likely ahead of the July 30th decision.

2. Interest rate predictions remain divided

While markets broadly expect the Bank of England to hold rates in the short term, the longer-term outlook remains uncertain. It is expected that there will be one rate cut before the end of the year, bringing the base rate down to 3.5%, while economist forecasts suggest rates could potentially rise if oil prices continue increasing or wage inflation remains persistent. A further rise towards 4% remains a possibility if inflationary pressures fail to ease.

3. Mortgage rates continue to improve for borrowers

Mortgage rates have become more favourable compared to previous highs, with many two-year fixed deals now available around the 4% mark. Rates continue to vary depending on deposit size, with borrowers providing larger deposits securing the most competitive deals, while those with smaller deposits typically face higher rates. Despite wider economic uncertainty, mortgage availability remains strong, with no current deals reaching the levels seen during previous peaks.

4. Lenders are competing for business in a quieter market

With lower market activity during the summer period, lenders are actively competing to attract borrowers, resulting in faster mortgage processing times and smoother applications. The main challenge for many buyers is not securing finance but finding the right property, with lender criteria remaining relatively flexible and some higher-income applicants able to access larger borrowing multiples.

5. Tracker mortgages are becoming more popular

Tracker mortgages are gaining attention as some borrowers anticipate future reductions in the base rate. These products are often priced below equivalent fixed-rate deals and can offer additional flexibility, including the ability to make overpayments, switch to a fixed rate later, or avoid early repayment charges. However, choosing between fixed and tracker options depends on individual circumstances and expectations around future interest rate movements.

6. Preparing for mortgage applications and life changes is essential

Early financial preparation for buyers, particularly those looking to move up the property ladder, is significant. Second steppers should consider how major life events, such as having children or taking maternity leave, may affect affordability assessments, while costs such as Land and Buildings Transaction Tax can also impact available deposits. Improving credit profiles through responsible borrowing, consistent bill payments and electoral roll registration can also strengthen mortgage applications.

7. Mortgage holders should plan ahead before fixed rates end

Homeowners approaching the end of a fixed-rate mortgage should begin reviewing their options around three to four months before their deal expires. Securing a new rate early provides a safety net while still allowing borrowers to switch to a better deal if rates improve. The podcast warns against allowing a fixed term to expire without action, as variable rates are typically much higher than available fixed-rate alternatives.

8. The mortgage market outlook remains uncertain

Looking ahead to the end of 2026, forecasts differ on where mortgage rates will settle. David expects rates to remain broadly similar or slightly higher, while Paul believes they could fall if the Bank of England begins cutting rates. Although some lenders have recently increased rates after a period of reductions, the overall mortgage market remains competitive, with borrowers continuing to benefit from improved conditions compared with recent years.

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