The average rate on a new five-year fixed mortgage in the UK has reached 6%, a level last seen three years ago, according to financial data provider Moneyfacts. Two-year fixed deals now average 5.98%, as lenders pass higher funding costs on to home buyers and people coming to the end of existing deals.
The speed of the change has been sharp. At the start of September there were 1,494 fixed-rate deals priced below 5%. Today there are nine, a fall of 99%. The largest high street lenders repriced repeatedly during the month: Barclays raised selected fixed rates on four occasions, while HSBC, Lloyds Bank, Nationwide, NatWest, Santander and TSB each made three rounds of increases. The five-year average is now at its highest since September 2023, and the two-year figure at its highest since December 2023.
Rachel Springall, finance expert at Moneyfacts, said the rises were inevitable because lenders’ wholesale funding costs have climbed with gilt yields, the interest rate the government pays to borrow over the long term. Global economic uncertainty since the start of the Iran war has added to the pressure. Springall called the return to three-year highs “disastrous news for borrowers”. Variable rate deals have held up better, with the number priced below 5% broadly unchanged, and some borrowers are choosing trackers that follow the Bank of England base rate.
Most UK homeowners and buyers hold fixed-rate mortgages, which stay at the same rate until the deal ends, usually after two or five years. Millions of those deals expire over the next two years, and Bank of England forecasts suggest just over five million homeowners will see their monthly repayments rise by the end of 2028. Springall advised anyone nearing the end of a fixed term to take advice and compare deals carefully, noting that some lenders allow borrowers to secure a new rate three months before their current deal ends and others allow six.
The mortgage squeeze adds to wider pressure on household bills. The RAC said the average price of diesel in the UK rose above £2 a litre on Friday for the first time, domestic energy prices went up by 4% at the start of October, and forecasters expect a 16% rise when Ofgem sets its next price cap for January. The government faces calls to help the households most likely to struggle when it delivers the Budget later this month.
