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This Thursday, the Bank of England will announce its final base rate decision of the year. After a lengthy period of gradual monetary policy easing since August 2024, attention has turned to how close interest rates are to reaching their floor.
Financial markets widely expect the Bank to cut the base rate by a further 0.25%, taking it from 4% to 3.75%. This would bring interest rates to their lowest level since early 2023. While the cut itself is largely priced in, attention sits with the accompanying guidance and what it signals about where rates might settle.
Many banks and economists expect the base rate to bottom out between 3% and 3.5%, with market pricing clustered towards the upper end of that range. This suggests that although further cuts are possible in 2026, the most significant phase of the easing cycle may be nearing its end.
The case for lower interest rates has strengthened in recent months as the UK economy shows increasing signs of strain. GDP figures from the Office for National Statistics released last week revealed that output unexpectedly contracted by 0.1% in October. At the same time, official figures show unemployment has increased to 5.1% (August to October 2025) from 5% (July to September 2025), while inflation edged lower than expected to 3.2% in November from 3.6% in October.
These data points will be key inputs into the Monetary Policy Committee’s decision.
Source: ONS Data
Fixed or tracker: what should borrowers consider?
With the base rate expected to drift lower over the coming year, tracker mortgages may appeal to borrowers who are comfortable with a degree of short-term uncertainty. These products allow borrowers to benefit immediately from any future rate cuts. However, with markets already pricing in a base rate floor around 3.5%, the scope for significant further savings may be limited.
Fixed-rate mortgages, meanwhile, have already come down. SONIA (Sterling Overnight Index Average) swap rates, a key driver of fixed mortgage pricing, have reduced across the board over the last month, and across short and medium-term swaps over the past year.
| SONIA Swaps | ||||
| 15-Dec-2025 | 12-Dec-2025 | 14-Nov-2025 | 13-Dec-2024 | |
| 1 Year | 3.536% | 3.545% | 3.627% | 4.303% |
| 2 Year | 3.476% | 3.489% | 3.554% | 4.094% |
| 3 Year | 3.511% | 3.526% | 3.576% | 3.987% |
| 5 Year | 3.625% | 3.644% | 3.665% | 3.868% |
| 7 Year | 3.750% | 3.775% | 3.787% | 3.830% |
| 10 Year | 3.946% | 3.975% | 3.987% | 3.866% |
| 15 Year | 4.203% | 4.235% | 4.260% | 3.985% |
| 30 Year | 4.402% | 4.437% | 4.478% | 4.023% |
| Rates provided by Chatham Financial as of 15 Dec 2025 | 16:00 GMT | ||||
Source: Chatham Financial
Although the Bank of England voted to hold rates again in November, by a narrow five-to-four margin, with four members favouring an immediate cut, lenders have continued to reduce pricing as market anticipation of an imminent base rate cut have pushed swap rates lower.
The average two-year fixed rate has fallen to around 4.33%, down from just over 5% this time last year (Rightmove). Competition among lenders remains strong, though many of the expected base rate reductions are already reflected in fixed-rate pricing.
The key here is that fixed rates offer a discounted price over variable rate money as of today. However, this factors in the market anticipation for the Bank of England base rate to level out at circa 3.5%. Tracker mortgages offer the potential to further benefit from more aggressive reductions in the Bank’s base rate. A fall to 3% would see tracker mortgages offering a healthy saving over current fixed mortgage pricing. Advice here is key, a mortgage must always be tailored to a borrower’s circumstances and risk appetite. Also, available products may dictate how attractive a tracker may be over a fixed rate, the context is highly important.
Closing out the year
The mortgage market has proved more resilient than many feared over the course of the year. Despite affordability remaining stretched, activity picked up in the first half of the year, supported by easing interest rates, rising wages, and modest house price adjustments. While uncertainty surrounding the Autumn Budget weighed on sentiment in the second half of the year, early indicators now point to renewed confidence and a busy start to 2026.
Many lenders allow borrowers to secure a rate several months before needed, while retaining the option to switch if more competitive deals become available before completion. This offers protection against any unexpected increases while preserving the flexibility to benefit from future improvements in pricing. Working with an experienced mortgage broker can help ensure borrowers are well positioned to take advantage of opportunities as market conditions continue to evolve.
To learn more about your mortgage options, you can reach our team on 0800 652 0971 or email info@privatefinance.co.uk.
This article is based on information available on the date of issue, 16th December 2025.
Disclaimer: The views and opinions expressed in this content are those of the author and do not constitute financial, legal, or professional advice, nor should they be interpreted as a recommendation. They do not necessarily reflect the official views, policies, or positions of Private Finance, and are not intended to represent broader market or industry perspectives.
