Interest rates held at 3.75% as Bank cuts UK growth outlook

Aneisha Beveridge, research director at Connells Group, said: “The Bank of England held rates today, a move that was widely expected and largely priced in. But for the housing market, the more meaningful shift has already been underway in mortgage pricing. Through January, rates continued their gentle drift downwards, offering a meaningful improvement in affordability for some households.

“First‑time buyers have been the quickest to respond. They made up 59% of new purchase mortgage applications in January – up from 57% in 2025, which was itself a record. Greater stability in borrowing markets, alongside regulatory tweaks last year, has also encouraged lenders to expand their higher‑LTV offerings, giving would‑be buyers with smaller deposits more room to move. Together, these trends have helped underpin activity in the early weeks of 2026.

“This matters because 2026 will be a pivotal year for the 1.8 million households whose fixed‑rate mortgages are due to expire. For anyone coming off a two‑year fix taken out in 2024, falling rates should offer a welcome reprieve. Many will be refinancing onto loans that start with a three or a four rather than the fives and sixes that dominated the market over the last few years. Combined with lower arrangement fees, typical monthly payments for these borrowers should fall by at least a couple of hundred pounds.

“However, the experience will be very different for those who locked into cheap five‑year fixes during the post‑Covid housing boom. They’ll be stepping back into a market where rates remain higher than when they last secured a deal, meaning some will face a reset in affordability even as the broader trend moves in the right direction.

“Overall, today’s decision reinforces the sense of stability returning to the market. While challenges remain, a slowly improving interest rate backdrop is beginning to feed through to households, with first-time buyers currently at the forefront of that shift. And with recent MPC meetings decided by narrow margins, the direction of travel suggests that future rate cuts could now be edging closer, provided the data continues to move in the right direction.”