The Intermediary – January 2026 - Flipbook - Page 11
RESIDENTIAL
Opinion
2026: A period of
adjustment
A
s the mortgage
market moves into
2026, the balance of
risks points towards
gradual adjustment
rather than a sharp
shi in direction. Mortgage rates have
eased from recent highs, competition
between lenders remains evident,
and refinancing activity is picking
up. However, the conditions for
a further rapid decline in pricing
appear limited.
Market expectations continue to
centre on Bank Rate reaching a low
point somewhere between 3.00% and
3.25% during the course of this cycle,
implying a small number of further
reductions over the year ahead. That
outlook is now well understood
and largely reflected in wholesale
funding markets.
As a result, many of the most
competitive fixed mortgage rates
already incorporate expectations of
further easing. Mortgage pricing is
inherently forward-looking, driven
less by individual policy decisions
and more by where markets believe
interest rates will sele over the
medium term.
From this point, fixed rates are
therefore likely to fall by less than any
further reductions in Bank Rate and
may ultimately stabilise, or even edge
higher relative to base, as expectations
converge on a cyclical floor.
This dynamic helps explain why
base rate changes do not always
translate into immediate or uniform
shis in mortgage pricing. Unless
expectations move decisively
towards a materially lower terminal
rate, the scope for further broadbased reductions in fixed rates
remains constrained. From here,
changes in pricing are more likely
to be incremental, reflecting finetuning rather than a step change in
market conditions.
For many households, 2026 is likely
to feel more like a year of adjustment
than outright relief. A large volume of
fixed-rate mortgages are due to mature
over the year ahead, supporting
elevated levels of refinancing activity.
The experience for borrowers will
vary significantly depending on when
they last fixed. Those coming off
shorter-term deals arranged aer rates
had already begun to rise should see
some improvement in pricing, even if
repayments remain higher than they
were earlier in the decade. By contrast,
borrowers reaching the end of longerterm fixes agreed when rates were
near historic lows will still face higher
repayments, even aer recent easing.
For this group, refinancing represents
a financial reset rather than a return
to earlier conditions.
Incremental change
Competition between lenders remains
one of the defining features shaping
outcomes in the current market and
continues to limit how far mortgage
rates can rise. Funding conditions
are relatively stable, balance sheets
are generally robust, and lenders
are keen to secure refinancing
volumes in what remains a subdued
transaction environment.
However, this competition is
playing out in a market that is
not expanding rapidly. Housing
transactions remain below long-term
averages and affordability constraints
persist despite lower rates. In that
environment, lenders are more likely
to compete selectively rather than
through across-the-board price cuts.
Sharper pricing is most likely
to be concentrated at lower loanto-value (LTV) levels and among
borrowers with strong affordability
and straightforward income profiles.
Pricing for higher LTV lending or
more complex cases may improve
more gradually. This reflects a
disciplined approach to deploying
capital and managing risk, rather
than any broad tightening of
credit standards.
NICK MENDES
is mortgage technical manager
at John Charcol
Beyond mortgages, there are early
signs that the housing market is
beginning to stabilise. Real house
prices declined over 2025, but easing
mortgage rates, some relaxation
in affordability assessments, and
incremental improvements in lending
criteria are starting to provide support.
Modest price growth over 2026 now
appears more likely than a renewed
period of broad-based declines,
although outcomes will continue
to vary significantly by region and
property type. More affordable areas
are likely to perform more robustly,
while higher-priced markets and flats
may continue to lag behind houses.
Credit performance is also expected
to remain relatively resilient. As cost
and rate pressures ease, arrears should
continue to trend lower, while any
increase in possessions is likely to
reflect a gradual normalisation from
historically low levels rather than a
deterioration in borrower resilience.
Taken together, these developments
point to a market that is gradually
finding its footing. Lender
competition remains strong,
refinancing activity is elevated,
and the direction of interest rates
is broadly supportive. However,
the phase of rapid mortgage rate
adjustment now appears to be
behind us.
From here, progress is likely to be
incremental, shaped less by shortterm policy decisions and more by
how lenders compete for volume as
interest rates approach their expected
floor. For borrowers and lenders alike,
2026 looks set to be defined by greater
clarity and a more stable, predictable
backdrop than in recent years. ●
January 2026 | The Intermediary
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