After a year of “gradual change”, what savings and mortgages trends can we expect in 2026?

Lower interest rates in 2026 could bring uneven benefits for households.

2025 was a story of interest rate cuts, as savings and mortgage rates remained on an overall downwards trajectory.

While providers consider many factors when setting rates, a major reason for this decline is because the Bank of England’s Monetary Policy Committee (MPC) lowered the base rate from 4.75% to 3.75% over the course of the year.

As a result, two-year fixed mortgage rates plummeted from an average of 5.46% in the first quarter of 2025 to an average of 4.93% in the last quarter, while five-year fixed mortgages saw a smaller drop from 5.26% to 4.98%.

This will have been encouraging for those buying a home or remortgaging in 2025, but it’s worth noting that average mortgage rates didn’t fall to the same extent as the UK’s central interest rate.

Savers suffered in 2025

Savings rates also dropped throughout 2025, with interest rates on easy access accounts seeing particularly notable drops. This isn’t surprising as variable rates are more likely to be directly affected by changes to the Bank of England’s base rate.

For example, easy access savings rates fell from an average of 2.90% in the first three months of 2025 to an average of 2.53% in the last three months, while their ISA equivalents dropped from 3.05% to 2.72%.

Fixed rates also declined throughout the year, with average one-year fixed savings and ISA rates falling by 0.24 and 0.20 percentage points, respectively, between the first and last quarter of 2025.

2026 forecast: What could the new year bring?

In its November 2025 Monetary Policy Report, the Bank of England forecast that the base rate could fall to 3.5% in 2026. This would only be a slight drop from the base rate’s current level of 3.75%, but how quickly it falls (if at all) will depend on how inflation and other economic factors evolve over the coming months.

The Bank of England’s MPC stated that the base rate is “likely to continue on a gradual downward path” in its December 2025 Monetary Policy Summary but added that any decisions “around further policy easing will become a closer call”.

Assuming inflation continues to ease and the base rate declines, this could have a mixed impact on households in 2026.

Could mortgage rates fall in 2026?

“Mortgage borrowers may see more tangible savings, but expectations should remain measured,” Adam French, Head of News at Moneyfacts, cautioned.

“Over the past few years, average mortgage rates have typically sat around 0.8 percentage points above the base rate. On that basis, a 3-3.5% base rate suggests average mortgage rates settling between 4% and 4.5%, lower than today, but still substantially higher than the ultra-cheap borrowing many households became accustomed to in the 2010s,” he continued.

However, although there are encouraging signs for the mortgage market, French warns that “the outlook remains finely balanced”.

“The effects of the Budget and disinflationary pressure from China may help contain prices, but global volatility, weak growth and persistent services inflation mean the road ahead may yet have a few more bumps in store,” he explained.

Around 1.8 million fixed rate mortgages are due to expire in 2026, according to the UK Finance mortgage market forecast. Some of these households may be coming off a two-year fixed deal, which means they may be able to lock in a cheaper rate, but other borrowers may have taken out a five-year fixed deal at historically low rates.

These individuals have so far been protected from increased mortgage rates so, when they come to refinance in 2026, they may find that interest rates (and their monthly payments) will be higher than on their existing deal.

Struggles likely to continue for savers in 2026

Savings rates are expected to remain on the same overall downwards path that they have been on for the past year.

“Since the start of 2023, average savings rates have consistently trailed the base rate by around one percentage point. If that relationship holds, a 3.5% base rate would translate into average savings rates of roughly 2.5%,” French noted.

This could be bad news for savers as, even if inflation continues to ease to the Bank’s target of 2%, French points out that “many savers will still struggle to achieve meaningful real returns, leaving their cash effectively standing still”.

While declining rates may not give savers much motivation to switch accounts, it’s just as important to review your savings to ensure you’re maximising the return on your money. There may still be some competitive rates available as we head into 2026 that can offer an inflation-beating return, so it’s always worth staying up to date with the latest accounts available.