In a move that could spark a price war in the mortgage market, HSBC has become the first major lender in the UK to cut its mortgage rates this year. The banking group, one of the country’s largest mortgage providers, has reduced rates across a range of residential and buy-to-let mortgage products, with the new rates taking effect on Monday.
The rate cuts come on the heels of the Bank of England’s decision to lower its base rate to 3.75% in December, with further cuts expected throughout the year. Mortgage brokers have welcomed the news, stating that it is good news for borrowers as rival lenders are likely to follow suit.
“Many of the other big lenders will feel the need to also cut to remain competitive, which could result in a rate war,” said David Stirling, an independent financial adviser at Mint Wealth. “HSBC has set the tone for 2026 early. This is a real statement of intent and shows that they are keen to lend en masse this year. Will we see a January rate war as others undoubtedly join the fold?”
The reduction in mortgage rates is expected to benefit around 1.8 million homeowners who are set to refinance their mortgages this year, as many are coming off super-low, fixed-rate deals secured before interest rates began rising at the end of 2021. According to Moneyfacts, the average rate on a two-year fixed residential mortgage is currently running at 4.83%, while the average two-year buy-to-let residential mortgage rate stands at 4.7%.
“We could potentially see sub-3.5% deals before the spring, with any luck,” Stirling added.
City economists predict two more cuts to the Bank of England’s base rate this year, despite the central bank’s warning that such judgments will become “a closer call.” The BoE’s Monetary Policy Committee voted five to four in favour of the December cut, with Governor Andrew Bailey switching his vote from hold to cut.
Borrowers on variable rate deals tied to the base rate will see their repayments fall as a result. However, the cost of fixed-rate mortgages is based on the outlook for rates and lenders’ desire to attract customers. UK Finance, the trade body, has predicted that demand for new home loans will fall in 2026, but remortgaging activity is set to rise.
“The cheapest two- and five-year fixes remain below bank rate, reflecting expectations of further cuts,” said Nicholas Mendes, the mortgage technical manager at the broker John Charcol. “As a result, fixed mortgage rates are likely to fall by less than bank rate from here, and by the end of 2026 could once again be priced above bank rate as markets judge rates to be close to their long-term floor.”
The news comes as Nationwide, the UK’s biggest building society, reported an unexpected fall in house prices in December, with the market finishing the year with the weakest annual growth in more than 18 months.