The Bank of England may reduce the base rate to 2.75% by late 2026, according to Lombard Odier, offering potential relief for landlords grappling with higher mortgage costs. The projection comes as weakening labour market data pushes inflation closer to the Bank’s 2% target.
Lombard Odier’s senior macro strategist Bill Papadakis told The Telegraph that policymakers will likely shift course as employment conditions soften. Wage growth has already slowed “meaningfully”, he noted, with the latest ONS figures showing private sector pay easing to 3.9% in the three months to October.
Unemployment is now above 5%, marking a clear step up from 2022 levels. Job vacancies, while slightly higher in the most recent release, remain well below both their pandemic peak and pre-2020 averages. This mix of cooling inflation and softer income growth could push the Bank towards sustained reductions in borrowing costs.
Market analysts broadly agree the direction of travel is downward, though not all are as optimistic.
- Capital Economics expects the Bank Rate to reach around 3%.
- Deutsche Bank forecasts two further cuts by mid-2026, taking rates to 3.25%.
- Pantheon Macroeconomics warns against aggressive easing, highlighting inflation risks tied to upcoming Budget decisions.
Lower rates could bolster rental demand as mortgage affordability improves for would-be buyers, often delaying their move into homeownership.
Specialist finance for landlords: opportunities emerging
A drop to 2.75% would mark the lowest rate in four years and could reinvigorate specialist buy-to-let lending. Even a 0.5 percentage point reduction can trim £70-£90 a month off repayments on a typical £200,000 interest-only mortgage, based on recent lender pricing.
One London letting agent reported that enquiries for rental homes jumped in late December as prospective buyers adopted a “wait and see” approach. That caution could lift occupancy rates, particularly in major cities where rents have risen by 7% annually, according to Zoopla’s latest index.
However, landlords refinancing from 2024-2025 fixes will still encounter higher rates than the ultra-cheap deals of the late 2010s. In this environment, strong yields and low void periods remain essential.
Housing market sentiment and long-term planning for investors
If the Bank of England does follow the path set out by Lombard Odier, confidence in the housing market could stabilise. Predictability over interest rates tends to unlock both homebuyer and investor activity, reducing the hesitancy that has defined the past 18 months.
Even the suggestion of a multi-year easing cycle helps with landlords portfolio planning. It may encourage some to expand holdings, particularly in northern regions where gross yields still exceed 7-8%, according to recent NRLA data.
But analysts caution that inflationary risks, fiscal policy shifts, and political uncertainty remain potential headwinds during 2026.
Editor’s view
Lower rates would unquestionably relieve pressure on leveraged landlords, many of whom have shouldered rising costs and dwindling incentives in recent years. Yet the long-term question remains: will policymakers pair monetary easing with a more balanced approach to rental sector regulation? If both stars align, 2026 could be the first genuinely positive year for investors in some time.
Author: Editorial team – UK landlord & buy-to-let news, policy, and finance.
Published: 5 January 2026
Sources: ONS, The Telegraph, Capital Economics, Deutsche Bank, NRLA
Related reading: Bank of England cuts base rate to 4.25% as inflation shows signs of easing
