What's happened
As of December 2025, mortgage rates in the US and UK have declined, easing borrowing costs. The US Federal Reserve cut rates to 3.5%-3.75%, potentially lowering credit card and auto loan rates. UK mortgage deals have dropped below 5%, with some offers near 3.5%, improving affordability amid regional price shifts. Experts forecast gradual housing market recovery and modest price growth in 2026.
What's behind the headline?
Impact of Rate Cuts on Borrowers and Savers
The Federal Reserve's recent rate cut to 3.5%-3.75% will gradually lower borrowing costs for consumers, especially those with variable-rate credit products. However, fixed-rate borrowers may see slower benefits. Auto loans and mortgages, influenced by Treasury yields, are expected to decline modestly but remain sensitive to inflation trends.
UK Mortgage Market Dynamics
UK lenders have aggressively lowered mortgage rates, with some fixed deals dropping below 4%, the lowest since 2022. This is driven by competition and anticipation of Bank of England rate cuts. Regional disparities persist, with prices falling in London but rising in northern regions, creating a "K-shaped" market.
Housing Market Outlook
In the US, forecasts predict a "Great Housing Reset" in 2026, characterized by slow price growth (~1%), improved affordability as wages outpace prices, and increased home sales. Mortgage refinance activity is expected to surge due to lower rates. In the UK, despite budget uncertainties and new property taxes, housing market stability and modest price rises continue.
Broader Economic Implications
Lower rates should stimulate borrowing, supporting consumer spending and potentially easing labor market pressures. However, savers face reduced returns on deposits and money market funds. Inflation concerns may limit the extent of rate cuts and keep long-term rates elevated.
What This Means for Consumers
Borrowers can expect some relief in borrowing costs, especially on new loans and variable-rate products. Homebuyers may find more attractive mortgage deals and slightly improved affordability, particularly outside London. Savers should prepare for lower yields. Overall, the housing market is stabilizing but remains sensitive to economic shifts and policy decisions.
What the papers say
The New York Post highlights that the Fed's rate cut to 3.5%-3.75% will lower variable APRs on credit cards and potentially auto loans, though mortgage rates depend more on the 10-year Treasury yield and may not fall immediately (Erica Sandberg, NY Post). Business Insider UK emphasizes the broader economic ripple effects, noting that lower rates could improve job market conditions and boost stock market investments, with Elizabeth Renter calling the cut a positive sign for job seekers. The New York Times' Tara Siegel Bernard points out that while auto loan rates remain elevated due to factors like credit history and tariffs, the Fed's moves are starting to accumulate savings for borrowers.
In the UK, The Independent's Karl Matchett reports that major lenders like Barclays and NatWest have cut mortgage rates below 5%, with some deals near 3.5%, marking the lowest rates since 2022. He notes regional price disparities, with London prices falling while northern regions see increases, creating a "K-shaped" market. The Guardian's Mark Sweney adds that despite a record-high average UK house price near £300,000, affordability is at its strongest since 2015 due to easing mortgage costs and income growth. Nationwide and Halifax data confirm modest price rises and stable market activity, with expectations of further rate cuts supporting gradual growth.
US forecasts from Redfin, cited by Business Insider UK, predict a "Great Housing Reset" in 2026 with slow price growth, improved affordability as wages outpace prices, and increased home sales. Redfin economists Chen Zhao and Daryl Fairweather caution that mortgage rates will remain in the low-6% range due to inflation risks but expect refinancing activity to surge. Freddie Mac data reported by AP News shows mortgage rates falling to their lowest in over a year, supporting these trends.
Together, these sources illustrate a cautiously optimistic outlook for borrowers and homebuyers amid evolving monetary policies and market conditions in both the US and UK.
How we got here
Following years of rising interest rates to combat inflation, both US and UK mortgage rates have recently declined. The US Federal Reserve's rate cuts aim to stimulate borrowing and economic growth, while UK lenders have reduced mortgage product rates anticipating Bank of England base rate cuts. These shifts come amid mixed housing market signals, including regional price variations and cautious buyer sentiment.
Go deeper
- How will the Fed's rate cuts affect my credit card and auto loan rates?
- What does the 'Great Housing Reset' mean for homebuyers in 2026?
- Why are UK mortgage rates falling faster than the Bank of England base rate?
More on these topics
-
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based.
-
Nationwide Building Society is a British mutual financial institution and the largest building society in the world.
As of 2024, it serves over 16 million members and operates entirely for their benefit, without shareholders. The society was established..
-
The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the m
-
Rachel Jane Reeves is a British Labour Party politician serving as Shadow Chancellor of the Duchy of Lancaster and Shadow Minister for the Cabinet Office since 2020. She has been the Member of Parliament for Leeds West since 2010.
-
Redfin is a real estate brokerage. The Seattle-based company was founded in 2004, and went public in Aug. 2017. Glenn Kelman is the CEO. Redfin's business model is based on sellers paying Redfin a small fee, either 1 or 1.5% to list the seller's home. Thi
-
Banco Santander S.A., trading as Santander Group (UK: SAN-tən-DAIR, -tan-, US: SAHN-tahn-DAIR, Spanish: [ˈbaŋko santanˈdeɾ]), is a Spanish multinational financial services company based in Santander, with operative offices in Boadilla del Monte.
-
NatWest Group plc, is a majority state-owned British banking and insurance holding company, based in Edinburgh, Scotland. The group operates a wide variety of banking brands offering personal and business banking, private banking, insurance and corporate
-
Barclays plc is a British multinational investment bank and financial services company, headquartered in London, England. Apart from investment banking, Barclays is organised into four core businesses: personal banking, corporate banking, wealth managemen