MORTGAGE rates could be set to tumble at the beginning of January, brokers predict, as lenders seek to make up for a quiet fourth quarter of 2025 due to the late November Budget. They say sub-3.5% rates are very much on the cards and, if just one major bank or building society makes an aggressive move, there could be a “full-blown rate war”.
In a potential sign of what’s to come, Leeds Building Society today announced reductions in residential and first-time buyer fixed rates for new borrowers of up to 0.20%. The lender also announced residential fixed rate cuts of up to 0.26% for existing customers and those seeking to borrow more.
Omer Mehmet, Managing Director at Trinity Finance, said: “Following last month’s base rate cut and inflation once again edging down, the first quarter could see lenders continue to shave their rates. In November and December we saw mortgage rate skirmishes but one big move from a major high street lender in early January could trigger a full-blown rate war.
“A lot of brokers are anticipating a busy first three months of the year. In part this will come due to lower rates, but there is also significant pent-up demand from transactions that were put on ice ahead of the late November Budget as people wanted to know what they were dealing with before buying or moving home.”
Rate war about to start
Darryl Dhoffer, Founder at The Mortgage Geezer, believes lenders will want to start 2026 with a bang: “As Fabrizio Romano would say: Here we go. I am expecting all the main High Street lenders to shave interest rates within the first two weeks of 2026. The reason why is simple commercial reality.
“After a sluggish final two months of 2025, lenders are entering the New Year with aggressive targets and empty loan books to fill. They cannot afford a slow start. They need volume immediately to make up for the fourth quarter. Margins are there to be squeezed, and lenders will want to start 2026 with a bang.
“Expect a New Year Sale mentality as the big banks fight to capture market share. The quiet period is over and a rate war is about to start.”
Katy Eatenton, Mortgage & Protection Specialist at Lifetime Wealth Management, agreed, adding that any rate cuts will prove beneficial to the estimated 1.9m people due to remortgage in 2026.
She said: “If one big lender makes some aggressive cuts, we could see a domino effect that will delight borrowers. A huge number of people are set to remortgage this year and mortgage rates edging down will help to reduce the pressure many households are under.”
Base rate cut key
Elliott Culley, Director at Switch Mortgage Finance, said the Bank of England cutting the base rate to 3.75% in December means mortgage rate cuts at the start of the year are highly anticipated.
He continued: “Mortgage lenders will have new targets and it’s expected that some will want to start 2026 with a bang by reducing their products. However, I don’t expect it to be the fire sale some have predicted and I would only expect to see reductions in the 2-year fixed rate market rather than the longer 5-year fixed rates.
“As 2026 progresses, it’s expected rates will reduce further, but mortgage borrowers may need to be patient and wait for mortgage lenders to make their move and markets to settle.”
Harry Goodliffe, Director at HTG Mortgages, said lenders look set to fire the starting gun in January, but the rate war may not happen immediately.
He said: “I don’t expect a full blown rate war on day one, but the pressure to move early will be huge. If swap rates [which determine the pricing of fixed rate mortgages] behave, sub-3.5% deals at lower LTVs are well within reach in the first week of 2026.
“The early cuts will come from building societies chasing market share and, once one blinks, the rest won’t be far behind.”
Slow and disciplined
Craig Fish, Director at Lodestone Mortgages, also said the heavy artillery may not come out right at the start of January: “I’m not expecting aggressive cuts in the first working days of 2026. We may see a few tactical moves as lenders compete for early visibility at the top of the best-buy tables, but these are likely to be modest rather than market-shifting.
“Sub-3.5% rates at lower LTVs are possible, but they’ll be selective and tightly controlled, aimed at borrowers with strong equity or large deposits rather than the wider market. Looking across 2026, margins should continue to edge down, but this will be slow and disciplined, not a race to the bottom.”
David Stirling, Independent Financial Adviser at Mint Wealth, believes a move by one major hitter such as the Halifax or Nationwide could set off a rate war.
He added: “Lenders will be keen to take advantage of improved borrower sentiments after the rate cut in December and will be vying to start the year strongly.
“With sub-4% rates readily available to borrowers with the right profile, we could potentially see rates sub-3.5% emerge by the end of January.”
Rate cut hype
Someone else who believes the rate war may be slightly delayed is Patricia McGirr, Founder at the Repossession Rescue Network.
She said: “I suspect the January rate cut hype will prove louder than the reality lenders are prepared to deliver. Most will sit on their hands in the first working days of 2026, waiting for markets to settle before showing intent.
“Any moves on Friday 2nd or Monday 5th are likely to be careful trimming, not a price war. Sub-3.5% rates at lower loan-to-values (LTVs) are achievable this quarter, but only for the cleanest borrowers. These will be shop window deals to win volume, not a market-wide reset.
“The first movers will be lenders with balance sheet headroom and confidence. Expect big High Street names and well-funded building societies to probe first, with others following once the tone is set.”
Justin Moy, Managing Director at EHF Mortgages, believes that while cuts are all but guaranteed, they may not be as aggressive as many hope: “I don’t see a lot of change at the start of 2026; lenders can only ‘slash’ rates if the Swap markets allow cheaper funding, and there is little need for lenders to give money away frivolously.
“There will be improvements over time, but this year will likely see more deals in the 3% range at all LTVs, with the specialist markets about 1% higher on average. Cuts? Yes. Aggressive cuts? I don’t think so.”
