Bank of England Holds Base Rate at 3.75%: What It Means for Mortgage Rates and the Property Auction Market in 2026
The Bank of England’s decision to maintain the base rate at 3.75% in February 2026 is reshaping the UK property landscape—lowering mortgage costs, fueling auction activity, and creating new opportunities for investors and buyers at Palace Auctions London.
Introduction: A Turning Point for UK Property and Auctions
The UK property market stands at a pivotal crossroads in early 2026. The Bank of England’s Monetary Policy Committee (MPC) has opted to hold the base rate at 3.75%—a move that signals both caution and optimism as inflation trends downward and economic growth remains fragile. For Palace Auctions London, this decision is more than a headline; it’s a catalyst for renewed activity, shifting buyer sentiment, and evolving investment strategies across the auction and property investment sectors. This article explores the current interest rate environment, the direct impact on mortgage rates, and how these changes are driving trends in property auctions and investment. Drawing on the latest data and expert forecasts, we provide actionable insights for buyers, sellers, and investors navigating the dynamic London property market.
The Base Rate Story: From Peak to Pause
Recent Rate Movements
- Current Base Rate: 3.75% (as of February 2026)
- Last Change: December 2025 (cut from 4.00% to 3.75%)
- MPC Vote: 5–4 to hold at 3.75%, with a minority pushing for a further cut to 3.5%
- Inflation: 3.4% (December 2025), projected to fall to 2.1% by Q2 2026
The Bank of England’s base rate peaked at 5.25% in August 2024, following a series of hikes to combat inflation. Since then, a cycle of six consecutive cuts has brought the rate down by 1.5 percentage points. The February 2026 decision to pause further cuts reflects a desire to balance inflation control with support for economic growth.
Key Finding:
The base rate is expected to fall further in 2026, with most forecasts predicting a drop to 3.25%–3.5% by mid-year and possibly 3% by year-end, depending on inflation and economic data.
Mortgage Rates: Relief and Renewed Competition
Current Mortgage Rate Landscape
| Mortgage Type | Typical Rate (All Lenders) | Big Six Lenders | Best Available (Select Lenders) |
|---|---|---|---|
| 2-year fixed (75% LTV) | 4.53% | 3.94% | 3.55% (60% LTV) |
| 5-year fixed (75% LTV) | 4.96% | 4.04% | 3.75% (60% LTV) |
| 2-year variable (75% LTV) | 4.25% | 4.18% | 4.14% (tracker, 60% LTV) |
| Standard Variable Rate (SVR) | 7.45% | 6.49% | 7.27% (market avg) |
| Buy-to-let 2-year fixed | 5.00% | 4.22% | 3.69% (60% LTV) |
| Major lenders such as Halifax, Nationwide, HSBC, and Barclays are offering highly competitive deals, especially for borrowers with larger deposits. For example, Halifax’s two-year fixed rate at 3.72% (60% LTV) and HSBC’s remortgage rate at 3.83% are among the most attractive on the market. |
Trends and Borrower Impact
- First-time buyers are returning, supported by lower rates and more accessible lending criteria.
- Re mortgagers (1.8 million in 2026) stand to benefit from lower monthly payments as they exit higher-rate deals.
- Buy-to-let investors are seeing improved yields, though regulatory and tax changes mean they are more selective.
Key Finding:
Fixed-rate mortgages are now more competitive than tracker or variable deals, with the best rates available to those with larger deposits and strong credit profiles.
The Auction Market: A Surge in Activity
Auction Performance Highlights
| Metric | Value (2024/2025) |
|---|---|
| Completion Rate | 95% |
| Average Completion | 56 days |
| Clearance Rate | 74%+ |
| Funds Raised (2024) | £5.5 billion |
| Average Sale Price | £583,143 (London) |
| Lots Sold | 28,063 |
| International Buyers | 30–40% of participants |
| January 2026 saw a 47.3% year-on-year increase in lots offered and a 53.1% rise in lots sold at UK property auctions. London led the way, with funds raised up 64.4% and a success rate of 67.6%. Palace Auctions London’s own performance mirrors these trends, with high completion rates and a growing international client base. |
Who’s Buying?
- First-time buyers: Highly active at lower price points (under £200,000)
- Buy-to-let investors: Focusing on value-add opportunities (conversions, refurbs, short leases)
- International investors: Middle Eastern and Chinese buyers have success rates above 80%, compared to 70% for UK buyers
Key Takeaway:
Auctions are increasingly mainstream, offering speed, certainty, and transparency—qualities highly valued in a market where private treaty sales can be slow and uncertain.
Investment Market: Shifting Strategies and Regional Opportunities
Yield and Returns
- Prime London yields: 3–4%
- Regional city yields: 7–9% (Manchester, Birmingham, Liverpool)
- Forecast annual returns: ~7% (2025–2028)
Lower borrowing costs are improving cash flow for investors, making rental properties more attractive. The trend is toward diversification, with investors seeking opportunities in both residential and commercial sectors, and a growing focus on regional markets where yields are higher.
Buy-to-Let and Landlord Trends
- Professional investors are capitalizing on increased supply as amateur landlords exit due to regulatory and tax changes.
- Auction lots in the £300,000–£600,000 range in London zones 3–4 are particularly in demand.
Expert Insights and Economic Forecasts
What’s Next for Rates and the Market?
- Base rate forecasts: 3.25%–3.5% by mid-2026; 3% possible by year-end
- Inflation: Expected to reach 2% target by Q3 2026
- House price growth: 1–4% nationally, with London and the South East lagging regional cities
- Rental growth: 3–4%, in line with wage growth
Expert View:
“The outlook for 2026 is for a gradual, measured reduction in the Bank of England base rate, with mortgage rates set to become more affordable and stable, supporting a modest recovery in property market activity and house prices.”
Risks and Uncertainties
- Persistent inflation or global shocks could slow or halt further rate cuts.
- Economic slowdown or rising unemployment could prompt more aggressive easing.
- Government policy (tax, regulation) remains a wild card for both buyers and investors.
Palace Auctions London: Positioned for Opportunity
Company Strengths
- Heritage and innovation: Over 192 years of combined experience, pioneering digital auction technologies (VR, AI-driven valuations)
- Global reach: 12 UK locations, 9 international offices, and a 50,000+ strong investor community
- Performance: Market-leading completion and clearance rates, robust international participation
Strategic Implications
- For buyers: Now is an opportune time to secure competitive mortgage deals and take advantage of increased auction supply.
- For investors: Focus on value-add opportunities, regional diversification, and leveraging lower borrowing costs for improved yields.
- For sellers: Auctions offer speed, certainty, and access to a global pool of motivated buyers.
Conclusion: Navigating the 2026 Property Market
The Bank of England’s decision to hold the base rate at 3.75% is a clear signal that the era of rapid rate hikes is over, ushering in a period of stability and opportunity for the UK property market. Mortgage rates have become more affordable, auction activity is surging, and both domestic and international investors are returning to the market with renewed confidence. For Palace Auctions London and its clients, the message is clear: the current environment rewards agility, informed decision-making, and a willingness to embrace new opportunities. Whether you are a first-time buyer, seasoned investor, or seller seeking certainty, the auction route offers compelling advantages in 2026.
Summary:
The interplay between monetary policy, mortgage rates, and property market fundamentals is creating a robust and opportunity-rich environment for Palace Auctions London and its clients. As the market continues to evolve, those who stay informed and act decisively will be best positioned to succeed.
Internal Links
- Property Auction Buying Guide
/property-auction-buying-guide/
Why: Educates readers on the auction process, directly supporting those interested in how rate changes affect buying strategies.
- London Property Market Analysis
/london-property-market-analysis/
Why: Offers regional insights, aligning with your London and international audience focus.
External Web Links (Authoritative, Relevant)
- Bank of England – Official Base Rate Page
https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp
Why: Direct source for current and historical base rate data.
- Rightmove – UK House Price Index
https://www.rightmove.co.uk/news/house-price-index/
Why: Up-to-date property price trends and market analysis.
- Zoopla – UK Property Market Report
https://www.zoopla.co.uk/discover/property-news/
Why: Authoritative insights on house prices, demand, and regional trends.
- Money Saving Expert – Mortgage Rate Updates
https://www.moneysavingexpert.com/mortgages/
Why: Trusted resource for mortgage rate changes and advice.
This article is based on market data and expert analysis as of February 2026. Palace Auctions London