Improved market sentiment has fed into rate expectations, but Capital Economics’ Ruth Gregory warns mortgage costs are unlikely to fall quickly.
10th Apr 20260 398 1 minute read Simon Cairnes
A ceasefire in the Middle East has raised expectations that mortgage costs could ease, although any improvement is likely to be gradual, according to analysis carried out by economic forecasters at Capital Economics.
They say average mortgage rates for borrowers with 25% deposits could fall from around 5% today to approximately 4.3% by January 2027 if the truce holds, which would cut monthly repayments by about £100 on a typical £250,000 loan.
The firm’s Deputy UK Chief Economist, Ruth Gregory (main picture), told GB News: “In our baseline scenario, Brent averages around $95 per barrel in the second quarter of the year before easing towards $80 per barrel by the final quarter.”
Significant hurdlesShe warns, though, that there remain “significant hurdles to overcome”, and if hostilities are renewed, it could keep Brent crude above $100 per barrel. That would mean inflation would rise to around 7%, and the Bank of England could be forced to raise the base rate multiple times, potentially taking borrowing costs to 4.5%.
What goes up must come down, but for mortgage rates the drop will be notably more gradual than the sharp increase triggered by the Middle East conflict.”
Tom Bill, Head of UK Residential Research, Knight Frank
Knight Frank also believes the ceasefire will “steady sentiment” in the housing market, but that it is unlikely to trigger a rapid fall in mortgage pricing.
Tom Bill, Head of UK Residential Research at the estate agency, says: “What goes up must come down, but for mortgage rates the drop will be notably more gradual than the sharp increase triggered by the Middle East conflict.”
He points out, however, that even if the fragile ceasefire holds, inflation pressures and higher Government bond yields, which underpin fixed-rate mortgages, are likely to keep borrowing costs elevated.
In response to the ceasefire, the money markets have now adjusted their expectations for the base rate, pricing in just one rise in 2026, rather than the two that were predicted earlier in the week.
TagsInflation rate mortgage rates 10th Apr 20260 398 1 minute read Simon Cairnes Share Facebook X LinkedIn Share via Email