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Average five-year fixed mortgage rates have reached 6%, their highest level since 2023, leaving thousands of homeowners who need to remortgage soon wondering how they’ll cover higher costs.
Average two-year fixed mortgage rates are also edging towards 6%, rising from 5.96% on Friday 2 October to 5.98% on Monday 5 October, according to Moneyfactscompare. Barclays, HSBC, Lloyds Bank, Nationwide Building Society, Santander and TSB have all recently increased selected mortgage rates.
“The past few weeks have seen pricing margins among major lenders come under immediate pressure from renewed swap rate volatility,” said Rachel Springall, Finance Expert at Moneyfactscompare.co.uk. Swap rates are a key factor in determining fixed-rate mortgage pricing. They have been rising as markets expect interest rates and inflation to remain higher for longer, putting upward pressure on mortgage rates. Learn more in our guide What are swap rates and how do they affect my mortgage?
Jason Hollands, managing director of online investment platform Bestinvest: ‘Rising market borrowing costs are expected to have a knock-on impact on mortgage rates, so those coming off cheap fixed rate deals over the next six months or so should engage with their lenders and act to secure a competitive new deal as early as possible as well as review their household budgets in preparation for higher financing costs.”
Lower cost fixes disappearing fast
There were around 1,500 fixed rate mortgages priced below 5% at the beginning of September, according to Moneyfactscompare, but this has now shrunk to just nine.
Ms Springall said: “This shows just how quickly the mortgage market has shifted for borrowers searching for the lowest rates. In contrast, the number of sub-5% variable rate mortgages has remained broadly stable, from 411 at the start of September to 389 today, excluding deals available exclusively for lending in Northern Ireland.
“It may then be no surprise if borrowers are seriously considering a variable rate deal, such as a base rate tracker mortgage, particularly if it does not apply an early redemption penalty.”
Deals without penalties mean that borrowers are free to switch to an alternative mortgage at any point.
However, if you do decide to go for a variable rate deal, you must be prepared for your mortgage payments to change over time
Learn more in our article Should I go for a fixed or variable rate mortgage?
What you can do about rising mortgage rates
Ryan Etchells, Chief Commercial Officer at specialist lender Together, said: “Start talking to your lender early. Most lenders will get in touch around three months before your fixed rate ends but there’s no reason to wait. In most cases, your current lender can offer a quick, hassle-free product switch without full affordability checks or mountain loads of paperwork.
“Whatever you do, try to avoid rolling onto your lender’s Standard Variable Rate (SVR). SVRs carry punishingly high interest rates that can quickly eat away at your budget. Securing a new fixed deal early gives you essential peace of mind and locks in certainty in an unpredictable market.
When looking for a new mortgage, remember not to base your decision on the interest rate alone.
Mr Etchells said: “When comparing any options, look at the total cost rather than just the headline interest rate. Switching lenders can come with legal and valuation fees, so make sure any potential monthly savings outweigh those upfront expenses and keep an eye out for incentives like free valuations or cashback.”
Find out more in our article Why the lowest rate mortgage may not be the cheapest deal.
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