Mortgage News – July 2026
July brought a mix of steady policy decisions and changing market expectations, with the Bank of England keeping the Bank Rate at 3.75% while global geopolitical factors influenced underlying money market pricing. As household energy caps rise and economic indicators present a balanced picture, staying proactive about home finance options remains key to securing the best outcome.
Market overview
We see a mortgage market shaped by a balance of economic resilience and cautious lender pricing. Gross mortgage lending during the first half of 2026 reached £145bn, up from £134bn in the same period last year, showing sustained activity across buyer categories.
While mortgage approvals rebounded in June, overall volumes remain subdued as buyers evaluate affordability against fixed-rate pricing. From our perspective, current conditions offer genuine opportunities for borrowers who plan ahead.
Bank Rate and interest rate expectations
The Bank of England Monetary Policy Committee voted 6-3 to hold the Bank Rate at 3.75% in July 2026. This vote was closer than expected, reflecting ongoing debate among policymakers.
Escalating Middle East tensions drove up forward market rates, leading money markets to price in two rate increases over the next twelve months. However, Bank of England Governor Andrew Bailey pushed back against this interpretation, stating that the central bank is not edging towards a rate hike and that higher forward rates largely represent risk premia rather than expected policy shifts.
Swap rates and mortgage rates
Fixed mortgage rates do not simply move in direct response to Bank of England Bank Rate decisions; they are primarily driven by swap rates, which reflect financial market expectations of future interest rates over two, five, or ten-year horizons. Because swap rates react quickly to global news, inflation data, and economic uncertainty, lenders regularly reprice, withdraw, or introduce products even when the Bank Rate remains completely static.
When swap rates fluctuate due to geopolitical factors or shifting risk expectations, lenders adjust fixed-rate deals to protect their margins. Fixed mortgage pricing can edge upward or downward independently of official rate changes, making continuous market monitoring crucial.
Inflation
Headline CPI inflation fell to 2.6% in June, but the Bank of England forecasts an increase during the second half of the year. Higher household energy price caps, rising from £1,477 in Q2 to £1,663 in Q3 and around £1,680 in Q4 will put upward pressure on overall inflation. Secondary effects from these energy costs are expected to filter through to everyday items such as food, clothing, footwear, and household goods.
Central bank projections place average CPI inflation at 3.2% in Q4 2026 before easing back to 2.1% by Q4 2027, with an adverse scenario pointing to a potential peak of 4.5% if energy pressures persist.
Economic activity
Economic growth started 2026 on a positive note, with gross domestic product expanding by 0.6% in the first quarter and an estimated 0.3% in the second quarter. Despite this start, forward-looking indicators suggest a more cautious outlook. The composite Purchasing Managers’ Index (PMI) flash estimate registered at 49.3 in June, dropping below the neutral 50.0 threshold that divides expansion from contraction.
The Bank of England projects quarterly growth to slow to 0.1% in both Q3 and Q4 as lower business confidence and tighter financial conditions weigh on consumer spending and business investment.
Jobs and wage growth
The UK labour market exhibits tentative signs of stabilization. The overall unemployment rate held steady at 4.9%, while payrolled employee counts and job vacancies remained flat in June.
Annual wage growth moderated to 4.3%, influenced partly by public sector pay settlements and seasonal bonus payments. With inflation at 2.6%, real terms wages grew by 1.1%, helping to sustain household purchasing power.
Looking forward, the Bank of England forecasts unemployment to peak at 5.3% next year, primarily driven by slower recruitment activity rather than widespread job cuts.
House prices and mortgage activity
Average house prices rose by 0.2% in June according to the Lloyds index, bringing the national average house value to £299,000, representing a 0.6% annual increase.
Royal Institution of Chartered Surveyors (RICS) reports indicated that market downturn pressures were easing, although this assessment preceded recent ticks upward in fixed mortgage rates. Industry data providers like Moneyfacts have observed that recent rate increases could temporarily check market momentum.
Gross lending of £145bn in H1 2026 demonstrates underlying market resilience, even as buyer selectivity remains high.
Product choice and lender changes
Lender competition remains active across major product categories as institutions seek to fulfill annual lending targets. While underlying swap rate movements have prompted select rate adjustments, lenders continue to refine product offerings to remain competitive.
Gross lending growth in the first half of the year highlights strong demand for refinancing and home purchases alike.
Managing rate fluctuations effectively requires working with advisers who review options across the entire market rather than relying on single-lender updates.
What this means for borrowers
For first-time buyers and home movers, real wage growth provides a stronger foundation for mortgage affordability calculations, even as house prices remain steady at £299,000.
Remortgage clients facing expiring fixed deals must account for potential short-term volatility in fixed-rate pricing.
We strongly recommend reviewing mortgage options up to 6 months before a current rate expires. Setting up an agreement early secures a safety net against potential rate rises. Furthermore, our team proactively monitors rates right up until completion; if lender rates fall before a new deal begins, we automatically switch borrowers to the lower rate to secure the best available terms.
Kerr & Watson’s view
We view the current economic landscape as a period of adjustment rather than sustained interest rate increases. While energy price changes and short-term swap rate movements may cause temporary upward pressure on fixed mortgage products, central bank messaging suggests official interest rates are near their peak for this cycle.
Our recommendation is to secure a rate well in advance to eliminate uncertainty. By partnering with us, you gain access to comprehensive market tracking and proactive rate adjustments that safeguard your finances.
Reach out to our team today to review your options and structure a tailored plan for your property journey.
