Mortgage shock: Average five-year rates hit 6% as cheaper deals disappear

UK mortgage rates have climbed to their highest level in three years, with the average five-year fixed residential deal reaching 6 per cent as rising gilt yields and volatile wholesale funding costs push borrowing costs higher.

The typical five-year fixed-rate mortgage available on the market rose to 6.00 per cent on Monday from 5.98 per cent on Friday, according to Moneyfacts. It was the highest average rate recorded since September 2023, when the equivalent figure reached 6.03 per cent.

The increase comes as the supply of cheaper mortgages collapses. The number of fixed-rate deals below 5 per cent available to borrowers across most of the UK has fallen from 1,494 at the beginning of September to just nine on Monday, Moneyfacts said.

Including products available exclusively in Northern Ireland, 107 sub-5 per cent deals remained, compared with 1,691 at the start of September.

The average two-year fixed mortgage rate was also approaching the 6 per cent threshold, reaching 5.98 per cent on Monday.

The sharp repricing reflects movements in swap rates, which lenders use to price fixed-rate mortgages, alongside rising government bond yields and wholesale funding costs.

“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.

“As wholesale funding costs climb on the back of rising gilt yields, fixed rate adjustments are somewhat inevitable.”

She described the impact on cheaper deals as “brutal”, with around 1,500 mortgages priced below 5 per cent disappearing since the start of September.

The renewed pressure comes at a difficult time for households already facing higher costs elsewhere. Borrowers reaching the end of previously agreed fixed-rate periods could find themselves refinancing into substantially more expensive loans, while prospective buyers face a deterioration in affordability.

Ian Harris, president of NAEA Propertymark, said the disappearance of sub-5 per cent mortgages would put further pressure on buyers.

“For some buyers, even a relatively small increase in monthly repayments can mean they have to reduce their budget or step back from a purchase altogether,” he said.

Sarah Tucker of the HomeOwners Alliance said the 6 per cent average represented “a real blow for borrowers”, particularly those moving off significantly cheaper fixed-rate deals.

She urged borrowers whose deals expire within six months to begin reviewing their options rather than assuming rates will fall.

The latest rise also threatens to weigh on the housing market by discouraging both transactions and moves. Sellers may become reluctant to give up existing low-rate mortgages, while buyers may have to lower their budgets to absorb higher monthly repayments.

For households, the return of 6 per cent average mortgage rates marks a sharp reversal from the cheaper borrowing environment that had begun to emerge earlier this year.