Interest rate change: What it means for each type of mortgage
As of February 2026, the Bank of England base rate stands at 3.75%, following a period of gradual reduction from its 2024 peak of 5.25%. At its meeting on 5 February 2026, the Monetary Policy Committee voted by a narrow 5–4 majority to maintain the rate at this level, reflecting a cautious approach as inflation remains slightly above target at 3.4%.
Where will mortgage rates go from here?
The Bank of England cut interest rates from 4% to 3.75% in December 2025, but then held rates at 3.75% in February 2026—a closer vote than expected, with four of the nine MPC members voting for a cut. Following higher-than-expected inflation data in January 2026, some lenders started reversing rate cuts, causing mortgage rates to edge back up in early 2026.
After a "price war" in January 2026 where the cheapest deals hit 3.5%, the average two-year and five-year fixed rates actually nudged slightly higher in February to 4.85% and 4.94% respectively, following a seasonal slowdown and cautious inflation data.
Going forward, a further Bank of England base rate cut to 3.5% is expected at the MPC's March 2026 meeting, with inflation forecast to ease toward 2.5% by late 2026.
What's the impact on this on mortgage rates? By the end of 2026, if the base rate settles near 3.25%, mortgage rates are more likely to stabilise rather than fall sharply from here. Current market expectations i February 2026 hint that the best deals might dip just below 3.5%, but that most borrowers are still likely to face rates in the 3.75–4% range.
Since the market already expects cuts to the base rate, those cuts may already be priced into current mortgage rates—especially impacting fixed rates, which are priced based on where lenders expect rates to go, not just where they are today.
That said, average mortgage rates might rise over the next few years, as millions of households are roll off the ultra-cheap fixed deals from the pre-2022 era onto current market rates.
In short, the era of sub-2% mortgages is firmly in the past, and the market is settling into a "new normal" somewhere in the 3.5–4% range.
Fixed vs Variable Mortgages
According to UK Finance's England Mortgage Market 2025-Q3 report, 86% of outstanding mortgages are on fixed rates, while 14% are on variable rates and 8% are interest only. Going forward, should people opt for fixed, or variable? Is there a smart move?
Dilemma for Mortgage Holders
There's a genuine dilemma for borrowers right now—should you opt for a fixed or variable mortgage in early 2026? If variable then tracker or standard variable?
MLAR data from the FCA and Bank of England shows that 89% of outstanding UK mortgages in Q3 2025 are fixed rate; and that advances for new lending was 93% fixed across all types of lenders. Meaning, in Q3 2025 an even higher proportion of households were opting for a fixed rate on their mortgage.
Fixed rates currently average 4.85–4.94%, with the best low-deposit deals can be found as low as 4.47%.
If you choose a tracker today at around 4.41%, you could see immediate benefits from the predicted March cut to 3.5%. However, if inflation proves 'sticky,' those on variable rates will continue to pay a premium compared to those who locked in the current sub-4% 'best-buy' fixes.
But because expected cuts are already baked into fixed rates, you may not get as much benefit from future cuts as you'd hope by fixing now. On the other hand, waiting for variable rates to fall further carries its own risks if inflation stays elevated.
These are just some of the considerations. With market uncertainty and needs varying from one person to the next, there's simply no right answer.
Be sure to check the market for the most up to date figures. In February 2026, the average Standard Variable Rate (SVR) is 7.15%, the average two-year tracker is much lower at 4.41%, and fixed rates currently average 4.85% – 4.94%.
Tracker Rate vs Standard Variable Rate
We mentioned both tracker and standard variable rates above, and you might be wondering why these rates are so different (given they are both types of variable rates). Here's a quick overview of each type of product to explain the differences:
The Tracker Rate (The "Automatic" Variable)
A tracker mortgage is strictly tied to an external benchmark, usually the Bank of England base rate (currently 3.75%).
- How it works: The rate is mathematically fixed at a set percentage above the base rate (e.g., Base Rate + 0.66% = 4.41%).
- Why it’s lower: Because it follows a transparent, predictable market rate, it is considered a "competitive" product. Lenders use these to attract new customers who want to benefit from potential future interest rate cuts.
- The "Track": If the Bank of England cuts the base rate to 3.5% in March, your 4.41% rate will automatically drop to 4.16% the very next month.
The Standard Variable Rate (The "Default" Variable)
The SVR (averaging 7.15%) is the lender’s own internal rate. It is not a "deal" you choose; it’s the "revert" rate you are dumped onto when your initial fixed or tracker deal expires.
- How it works: The lender has total discretion. They can raise or lower it whenever they like, even if the Bank of England does nothing.
- Why it’s higher: It’s essentially a "convenience tax." Lenders know that if you’re on the SVR, you are probably "out of contract." They charge a premium because they can, and because most SVRs have no Early Repayment Charges (ERCs), giving you the freedom to leave at any time without penalty.
- The "Driver": Unlike the tracker, if the Bank of England cuts rates, your lender might choose to pass on the full cut, only half of it, or—in some cases—none at all.