The Bank of England’s cut to 3.75% has fired the starting gun on a price war among mortgage lenders. Banks and building societies, desperate to hit their lending targets after a quiet year, are expected to cut their fixed-rate deals aggressively in January. This “mortgage war” is great news for borrowers.
Lenders price their deals based on “swap rates,” which anticipate future Bank of England moves. The cut signals that the peak is definitely passed, giving lenders the confidence to offer 5-year fixed deals well below the base rate, perhaps heading towards 3.5% or lower.
Competition is fierce because the pool of buyers has shrunk. To win business in a “fragile economy,” lenders have to offer cheaper money. They will squeeze their own profit margins to grab market share.
However, strict affordability criteria remain. You might find a cheap rate, but if you can’t pass the stress test, you can’t have it. The war is for the “prime” borrower with a big deposit and a secure job.
For the lucky few who can refinance in early 2026, the savings could be substantial. The rate cut has shifted power from the lender back to the borrower for the first time in years.