HSBC has become the first major lender to cut mortgage rates this year, a move that could spark a price war over the coming months.
The banking group, which is one of the UK’s largest mortgage lenders, has cut rates across a range of residential and landlord buy-to-let mortgage products. The new rates come into effect on Monday.
The move follows a reduction in the Bank of England base rate in December to 3.75%. Mortgage brokers said it was good new year news for borrowers as rivals were 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,” David Stirling, an independent financial adviser at Mint Wealth, told the news agency Newspage.
“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?”
Approximately 1.8 million homeowners are expected to refinance mortgages this year, with many coming off super-low, fixed-rate deals secured before interest rates began rising at the end of 2021.
Last week the financial data firm Moneyfacts said the average rate on a two-year fixed residential mortgage was running at 4.83%. The average two-year, buy-to-let residential mortgage rate stood at 4.7%.
“We could potentially see sub-3.5% deals before the spring, with any luck,” Stirling said.
City economists expect two more cuts to the base rate this year, despite the Bank of England warning that such judgments will become “a closer call”.
The BoE’s monetary policy committee voted five to four in favour of the cut in December, with the governor, Andrew Bailey, switching his vote from hold to cut.
Borrowers on variable rate deals tied to the base rate will see their repayment fall as a result. The cost of fixed-rate mortgages is based on the outlook for rates and on lenders’ desire to attract customers. Recently the trade body UK Finance predicted that demand for new home loans would fall in 2026, but remortgaging activity was set to rise.
Nicholas Mendes, the mortgage technical manager at the broker John Charcol, said much of the predicted outlook for the base rate was already priced into fixed-rate mortgages.
“The cheapest two- and five-year fixes remain below bank rate, reflecting expectations of further cuts,” he said. “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.”
Last week Nationwide, the UK’s biggest building society, said house prices unexpectedly fell in December, with the market finishing the year with the weakest annual growth in more than 18 months.
City economists had forecast a 0.1% month-on-month rise.
