What is the interest rate prediction for 2026 UK?
It expects a rate of 5.1% for 2024, one of 4.5% for 2025 and a rate of 4.2% for 2026.
2025/2026 UK Interest Rate Predictions
Highest Projection for Q4 2025: The Bank of England predicts interest rates in 2025 will stabilise at 3.4%. Lowest Lowest Projection for Q4 2025: 30 Rates anticipates a significant drop to 1.75%. Highest Projection for 2026: Money To The Masses sees rates at 3.74%.
The average mortgage rate that UK homeowners are paying is set to rise steadily over the next three years, and peak at 4.2% in 2027, according to an official prediction last week.
The 10-year treasury constant maturity rate in the U.S. is forecast to decline by 0.8 percent by 2026, while the 30-year fixed mortgage rate is expected to fall by 1.6 percent. From seven percent in the third quarter of 2023, the average 30-year mortgage rate is projected to reach 5.4 percent in 2026.
In terms of the UK interest rate forecast for the next 5 years, the BoE itself gave forecasts as far as 2026 in its May report. The bank saw interest rates at 4.4% (lower than the current rate) in the second quarter of 2023, where the rate was projected to stay in Q2 2024, before falling down to 3.8% in Q2 2025.
While it's not possible to make accurate UK mortgage rate predictions for the next 5 years, the Office for Budget Responsibility has forecast that mortgage rates on average are expected to rise from a low of 2% in 2021 to a peak of 5% in 2027 across all properties.
Interest Rates for 2021 to 2027. CBO projects that the interest rates on 3-month Treasury bills and 10-year Treasury notes will average 2.8 percent and 3.6 percent, respectively, during the 2021–2027 period. The federal funds rate is projected to average 3.1 percent.
When will interest rates fall? Most analysts think that interest rates have peaked, and will soon start to fall – with current market expectations placing the first cut this summer. The Bank will lower the base interest rate to 3% by the end of 2025, according to analysis by research firm Capital Economics.
The Bank of England will cut the base rate to around 3 per cent by in 2025, according to the latest forecasts from Capital Economics. Wider market expectations continue to also all point towards the Bank of England cutting the base rate later in 2024, albeit they have been revised up since the start of the year.
| 2024 Forecast | 2025 Forecast | |
|---|---|---|
| Mortgage Bankers Association | 6.1%* | 5.6% |
| National Association of Home Builders | 6.61% | 6.01% |
| National Association of Realtors | 6.5% | 6.1% |
| Realtor.com | 6.8% (6.5%*) | — |
Will interest rates go down in 2026 UK?
The Confederation of British Industry (CBI) does not expect the Bank of England to cut interest rates until 2026, predicting that the base rate will stay at 5.25% for at least two more years.
Here's where three experts predict mortgage rates are heading: Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."
UK Interest rates are expected to end 2024 at around 5% before falling further to around 4.5% by the end of 2025, where they are expected to remain.
Bank of England official nominal interest rates will rise linearly to 4% by 2030 (i.e., just over 25bp of hikes per year). This resting point for interest rates reflects a combination of long-term real GDP growth of 2% plus 2% inflation.
Monetary Policy Summary, February 2024. The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 31 January 2024, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25%.
Deciding whether to fix your mortgage for 2, 3, 5 or even more years can be a difficult decision, as it will depend on your individual circ*mstances and your appetite for risk. If you're looking for certainty and peace of mind, a 5-year fixed rate mortgage may be the right choice for you.
Meanwhile, mortgage woes could be somewhat reduced in the coming years, as OBR figures indicate that average mortgage interest rates will hit a peak of 4.2 per cent in 2027, 0.8 percentage points lower than the OBR forecast made in November.
According to their latest forecast for 30-year mortgage rates in October 2023, they expect them to range from 7.40% to 7.86%, with an average of 7.63%. They also predict that mortgage rates will peak at 9.41% in May 2024, before gradually declining to 3.67% by November 2027.
The Office for Budget Responsibility now expects Bank of England central interest rates to settle at 4pc by the end of its forecast period in 2028-29, rather than fall to 3pc as it had assumed in March.
Forecasted interest rate on the ECB's main refinancing operations 2023-2025. According to the European Central Bank's survey of professional forecasters, the interest rate on the ECB's main refinancing operations is expected to decrease from 4.5 percent in December 2023 to 4.15 percent in 2024 and 3.29 percent in 2025.
How long will interest rates stay high?
Interest rates have held steady since July 2023.
The Fed raised the rate 11 times between March 2022 and July 2023 to combat ongoing inflation. After its December 2023 meeting, the Federal Open Market Committee (FOMC) predicted making three quarter-point cuts by the end of 2024 to lower the federal funds rate to 4.6%.
The average 30-year fixed mortgage rate as of Thursday was 6.99%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
One reason being that as the Federal Reserve begins to cut rates, the bond market is expected to become less volatile, leading to a slight decline in mortgage rates. The average 30-year fixed mortgage rate as of Friday is 6.91%. By the final quarter of 2025, Fannie Mae expects that to slide to 6.0%.
The market is now pricing in that the Bank of England base rate will fall to 5% by August 2024 (down from its current level of 5.25%). By the end of 2025 it will have fallen to 3.88% before slowly falling to around 3.34% in 2029, as shown in the table below.
“Mortgage rates will be at least a full 2% lower by 2025.” She adds that if the inflation rate holds at 2%, then we should see mortgage rates remain at lower levels for the balance of the next five years.
