Prime Highlights:

• HSBC becomes the first major UK lender to reduce mortgage rates in 2026, signaling a more borrower-friendly market.
• The move may trigger a rate war, offering homeowners and landlords better deals and potential savings.

Key Facts:

• The Bank of England’s base rate was cut to 3.75% in December, paving the way for lower mortgage rates.
• Around 1.8 million homeowners are expected to refinance this year, taking advantage of more affordable mortgage deals.

Background:

HSBC has become the first major UK lender to reduce mortgage rates this year, a move expected to influence the market and potentially spark competition among other banks. The new rates, which apply to both residential and landlord buy-to-let mortgages, take effect on Monday.

The decision follows the Bank of England’s base rate reduction to 3.75% in December 2025. Industry experts say HSBC’s move is likely to encourage other lenders to follow suit, offering better deals to attract borrowers.

“HSBC has set the pace for 2026. Other major lenders will likely feel compelled to lower their rates to stay competitive, which could result in a rate war,” said David Stirling, independent financial adviser at Mint Wealth. “This signals that HSBC is keen to lend actively this year, which is positive news for homeowners and investors alike.”

Around 1.8 million homeowners are expected to remortgage in 2026, with many coming off long-term fixed-rate deals secured before interest rates began rising at the end of 2021. Currently, the average two-year fixed residential mortgage rate stands at 4.83%, while buy-to-let mortgages average 4.7%, according to financial data firm Moneyfacts.

Stirling added that sub-3.5% mortgage deals could be possible before spring if the competitive trend continues. City economists also anticipate two more base rate cuts this year, although the Bank of England has cautioned that future decisions will require careful consideration.

Borrowers on variable-rate deals tied to the base rate will see repayments fall immediately, while fixed-rate borrowers may benefit as lenders adjust their offerings to remain competitive. Nicholas Mendes, mortgage technical manager at John Charcol, noted that fixed-rate deals already reflect expectations of future cuts, but could still end 2026 slightly above the bank rate.

Meanwhile, Nationwide, the UK’s largest building society, reported a slight drop in house prices in December, ending the year with the slowest annual growth in over 18 months. Lower mortgage rates could make it easier for people to refinance and help the housing market.

HSBC’s rate cut gives borrowers a better start to 2026, with cheaper deals and possible savings.