Earlier this month, the Bank of England base rate was cut from 4% to 3.75%, the lowest it’s been for nearly two years.
Like many homeowners, this week’s Money Problem reader, Krish, is wondering what that could mean for his mortgage.
As his Surrey home loan is up for renewal next year, the 39-year-old is keen to make the most of this drop to reduce his interest payments.
But with experts hinting there may be further reductions on the horizon, Krish reached out to Metro consumer champion, Sarah Davidson, for a fresh perspective.
The question…
My wife and I are due to remortgage in six months and our broker recently got in touch with us to say we could start to look at new deals now if we wanted to lock into a rate or even refinance early.
We’re currently on a five-year fixed rate so we’re paying less than 2% at the moment. We’ve had a look around and it looks like the best five-year fixed rates are around 4% at the moment.
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Whatever we do, we’re going to see our mortgage payments go up massively when this deal ends, but I know that interest rates have come down quite a bit over the past year.
We’ve got two small children, nursery fees and food and household bills are really eating into our incomes. Any money we can save is going to be a big help to us and I’ve heard there could be more cuts next year. Should we lock into a rate now or wait until next summer?
The answer…
Will the Bank of England cut interest rates again in 2026? If not a million dollar question, as you point out, it could be a question that makes several thousand pounds difference to homeowners across the country.
First thing to say – there is literally no way of telling.
You mention that you’ve heard there could be more cuts next year and it’s true that markets are expecting to see another couple of cuts to the base rate in 2026. Bear in mind though, markets get it wrong as often as they get it right.
There are numerous factors that will determine whether interest rates come down again next year. The big ones are inflation – how fast the cost of living goes up – and the wider health of the UK economy.
Both of these measures are vulnerable to global political and economic shocks. For example, if it turns out the AI frenzy currently driving a massive rise in stock markets in the US was to fizzle out, that might be an argument to cut interest rates in the UK.
On the other hand, if the price of energy was to spike again as it did a few years ago then inflation could see a similar kick up – that would put pressure on the Bank of England to raise rates.
The point here is that market expectations are based on the knowledge we have today. But as the pandemic rudely awoke the world to, the unexpected can come out of nowhere and turn our reality completely upside down.
Your question is whether you should refinance early or wait until closer to the end of your term, which will be in June next year.
When you’re making an important financial decision, you should base it on your own circumstances. Ignore the noise and do what you know you can afford.
For you personally, I have some potentially good news.
A lot of lenders will allow you to ‘lock’ into a mortgage deal up to six months before your deal ends. Doing this offers you two advantages – if rates are better today than in six months’ time, happy days. Or, if rates are better in six months’ time, ditch the deal you’ve booked and find a new one – happy days.
There is a caveat though; mortgage lenders are starting to reduce this flexibility, with some taking this timeframe down to three months.
More Metro Money Problems
Your best bet is to book that appointment with your mortgage broker today. They will take you through your current financial position, look at your income today and the commitments you have now.
Given your last mortgage was taken more than four years ago and you mention you have two small children, it’s highly likely your finances have changed considerably since then.
Your broker will help you to work out what you can afford to pay, they’ll find you the best rates, they’ll be able to show you options to bring your monthly repayments down by lengthening your term. They will also help you compare as many different approaches as you want.
Remortgaging does not automatically mean you have to refinance based on exactly the same terms as you currently have. What’s important is that you, your wife and your broker work out the most appropriate and affordable choice for you and your family.
