The average interest rate on a new five-year fixed mortgage has reached 6% for the first time in three years, according to data from financial information service Moneyfacts.
Lenders have raised rates repeatedly in recent weeks as their wholesale funding costs have climbed. Rising yields on government bonds have increased the cost of government borrowing over the long term, which lenders pass on to borrowers. Major High Street lenders including Barclays, HSBC, Lloyds Bank, Nationwide, NatWest, Santander and TSB all raised selected fixed rates multiple times during September.
The supply of affordable mortgages has contracted sharply. The number of fixed-rate deals priced below 5% has dropped by 99%, from 1,494 at the start of September to nine now. The average rate on two-year fixed mortgages stands at 5.98%, the highest since December 2023.
Rachel Springall, finance expert at Moneyfacts, said that rate rises were "inevitable" because lenders' wholesale funding costs had risen due to climbing gilt yields. She described the situation as "brutal" for borrowers and warned that those coming to the end of a fixed deal would be "wise to seek advice and compare deals carefully." Some lenders allow borrowers to lock in a rate three to six months before their current deal expires.
The timing creates pressure for millions of mortgage-holders. Just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028, according to Bank of England forecasts. Many borrowers had expected rates to fall this year given improved economic conditions, but international uncertainty has upended those expectations.
The mortgage rate increases compound broader cost pressures. Diesel prices rose above £2 a litre in the UK for the first time on Friday, according to the RAC motoring group. Domestic energy prices rose 4% at the start of October, with forecasters predicting a 16% increase when regulator Ofgem sets its next price cap for January.