Tembo Market Watch: February 2026

TLDR:

• As expected, the Bank of England held the base rate at 3.75% at its latest meeting. Cuts are still likely later in 2026 rather than immediately.
• Mortgage rates are easing, despite some short-term headline rises, improving affordability for buyers and remortgagers.
• A new 2% deposit first-time buyer mortgage is available that allows eligible borrowers to purchase with an ultra-low deposit. Discover your mortgage options here.
• Buyer confidence is slowly returning, helped by mortgage rates hitting three-year lows.
• The housing market remains price-sensitive, but momentum is building under the surface.
• Cash ISA and Lifetime ISA reforms are coming; it’s vital for savers and first-time buyers to reassess their options to ensure their money is working as hard as possible for them.

Let’s break down exactly what’s happening and what this means for you.

Base rate on hold for now, but cuts still expected

At midday on 5th February 2026, the first meeting of the year, the Bank of England’s MPC voted to hold the base rate at 3.75%. This reflects the ongoing caution among policymakers as inflation remains above target, despite signs of slower economic growth.

While no cut was delivered this month, the market is still expecting the base rate to be cut later in 2026, with many economists expecting the first move once inflation shows more consistent signs of easing. In other words, rates are paused for now, but the longer-term direction still looks downward.

Mortgage rates fallen to their lowest level since 2022

Although some lenders have nudged headline mortgage rates up in recent weeks, the underlying trend remains downward. In fact, mortgage rates are now at their lowest since 2022, with 2-year and 5-year fixes continuing to edge lower. Several major lenders are now offering more competitive pricing as funding costs ease, as well as several smaller, specialist lenders and building societies making some headline-grabbing cuts to their fixed-rate products. See the latest rates here.
This matters because lower mortgage rates are starting to translate into real affordability gains, especially for buyers with smaller deposits or those remortgaging off higher-rate deals. Discover your best mortgage options from +100 lenders in minutes.

First-time buyers can now get a mortgage with 2% deposit

Santander has recently introduced a new “My First Mortgage” aimed at helping first‑time buyers get on the property ladder with a deposit as low as 2%. However, there are some caveats - you still need at least £10,000 upfront, and the product only applies to house purchases up to £500,000. It also excludes self‑employed applicants and isn’t available for flats or new builds. 

Even with these limitations, this new product will still help to lower the saving barrier for would‑be buyers. But, as ever, one scheme won’t be the magic pill to solve the housing crisis, but together with the other innovative mortgage products on the market, like Guarantor mortgages, shared ownership and other low deposit options, first-time buyers can make home happen. And with Tembo, they can discover what options are open to them without having to research every scheme out there! Get started here.

Nearly 1 million 5-year fixed mortgages up for renewal in 2026

Five years ago, the market was full of sub-2% deals; today the average 5-year fixed rate deal is 4.89%. Although borrowing costs are now at their lowest level in almost 3 years, for the nearly 1 million households who took out 5-year fixed rate deals back in 2021, they could be facing higher payments when they remortgage.

It’s not normal for mortgage rates to dip as low as they did five years ago. The rates offered during that period were sub-2%, reflecting the ultra-low interest rate environment at the time. Mortgage rates in the 3-4% are much more “typical”, although over time, mortgage rates vary.

This may feel like little consolation for these households, who may be facing jumps in the monthly repayments when they remortgage. It’s estimated that some households could see their annual mortgage payments jump by as much as £2,124.
If you are in this situation, please don’t stick your head in the sand. Doing nothing could result in you moving onto your lender’s standard variable rate (SVR) once your deal ends, which is typically much higher. Right now, the average SVR is 7.25%. Instead, get expert advice on the best options for you from a wide range of lenders (we advise on over 100!), and lock in your best deal. You can always reapply later down the line if rates drop. And if you do this through Tembo, we’ll apply for you at no extra cost with our RateCheck service*.

What does this mean for you?

• Fixed-rate mortgages: If your fixed deal is ending, or you’re hoping to buy soon, the recent market movements are good news - even if rates aren’t as low as they were five years ago. Now is the time to see what rate you could get! Remember, mortgage offers typically last between 3-6 months, and with Tembo's rate checking service, you can reapply at no extra costs if rates drop down the line*. Protecting you from potential rate rises, and giving you the flexibility to reapply if lower mortgage rates do emerge over the next few weeks or months. Get started here.
• Tracker mortgages: If you’re on a tracker, you won’t see any change to your mortgage rate until the base rate changes - which could come in spring. Find out more here. 
• Variable rate mortgages: Average standard variable rates (SVRs) are still sitting well above both newly priced fixed-rate deals and tracker mortgages, meaning borrowers who revert to their lender’s SVR at the end of a fixed-rate deal may face a sharp increase in monthly repayments. See what fixed-rate deals you could get.

Buyer confidence is returning to the market

Lower mortgage rates are already having an impact on buyer behaviour, with demand picking up recently. While sales volumes are still below pre-2022 norms, more buyers are now able to pass affordability checks, a key barrier over the past 18 months.

This doesn’t signal a housing boom, but it does suggest the market is finding its footing again, particularly among first-time buyers and home movers who paused plans during peak rate uncertainty.

Savers rush to fund Cash ISAs as upcoming reforms cause urgency

Savers are acting fast, and for good reason. There’s been a rush of savers putting money into Cash ISAs, as proposed reforms could reduce the amount people can save tax-free in these accounts going forward. From April 2027, the Cash ISA allowance changes for under-65s, dropping from £20,000 to £12,000 per tax year, while the full £20,000 remains for those 65+. The overall ISA allowance will stay at £20,000. Find out more here.

The aim of these changes from the government is to encourage more people to invest money in stocks and shares, as opposed to cash accounts. But there’s been a strong kickback to these changes. As many savings rates remain competitive and attractive, many savers are opting to save into cash for now to benefit from the interest gains.

Lifetime ISA reform: Growing pressure for change

The government has confirmed that Lifetime ISAs will be reformed, but not scrapped. Existing LISAs can remain open, and savers can continue contributing under current rules indefinitely.

Currently, the government’s plan is to introduce a new, simpler first-time buyer ISA in April 2028, designed to reduce complexity and remove the harsh withdrawal penalties for ineligible withdrawals with the current Lifetime ISA. The 25% government bonus is expected to stay, but may be paid as a lump sum when you buy your first home.

Other key details, including whether the £450,000 property price cap will rise, haven’t been confirmed yet. We’ll be keeping a close eye on the consultation and will update you as soon as the next set of details is released.

Tembo’s take:

For now, the proposed Lifetime ISA reforms are a welcome step forward. Removing the withdrawal charge and simplifying its design is the right move, but it must keep the incentives that make it effective.

What’s next for the market?

If you’re looking to buy or remortgage, the Bank of England’s decision to hold the base rate at 3.75% means your borrowing costs are likely to stay stable in the short term. Lower underlying mortgage rates and improving market confidence could make it easier to shop for a competitive fixed-rate deal and move forward with your plans. See your options with a free Tembo plan.

If you’re saving for a deposit or other financial goals, competitive savings rates are still available, but upcoming ISA reforms mean acting sooner could pay off. Locking in a good deal now can help you grow your savings while staying prepared for the changes in the near future.

*Full terms and conditions of our rate checking service can be found here.

**Based on saving £100 at the beginning of each month for 5-years. Calculations show at month 61 (after 5-years) Tembo customers saving at 3.80% would have £390.29 on average more than saving with Barclays, HSBC, NatWest or Lloyds. Accurate February 2026.