Five-year mortgage rates reach 6 percent amid rising borrowing costs

The average interest rate on new five-year fixed mortgage deals has reached 6 percent, marking the first time this level has been recorded in three years. This increase reflects a broader trend of rising home loan costs over recent weeks, driven by higher operational expenses for lenders. These costs are being pushed up by international concerns regarding inflation, interest rates, and government borrowing. According to the financial information service Moneyfacts, the shift has resulted in approximately 1,500 mortgage deals priced below 5 percent disappearing from the market since the start of September. The service described the current environment as brutal for borrowers, noting that the average rate on two-year fixed mortgages has also climbed to 5.98 percent.

For most homeowners and buyers, who typically hold fixed-rate products, the interest rate remains constant until the deal expires, usually after two or five years. At that point, borrowers must select a new product to replace the expiring one. The recent surge in rates is attributed to global economic uncertainty that has intensified since the start of the Iran war. Moneyfacts reported that major High Street lenders implemented repeated fixed-rate increases during September. Barclays raised selected fixed rates on four separate occasions, while HSBC, Lloyds Bank, Nationwide, NatWest, Santander, and TSB each conducted three rounds of increases. Consequently, the average rate on new five-year deals is now at its highest level since September 2023, and two-year deals are at their highest since December 2023.

Rachel Springall, a finance expert at Moneyfacts, stated that the return of average fixed mortgage rates to three-year highs would be disastrous news for borrowers. She noted that those who had hoped for rate stabilisation would be disappointed. Springall advised individuals nearing the end of their fixed deals to seek professional advice and compare options carefully. She explained that some lenders permit customers to lock in a rate three months before their current deal ends, while others allow a window of six months. The expert characterised the rate rises as inevitable, citing a climb in lenders’ wholesale funding costs resulting from rising gilt yields. These yields represent the interest rates on government bonds, and their increase means it costs the government more to borrow over the long term.

The impact on the mortgage market has been significant, with the number of fixed-rate deals priced below 5 percent plunging by 99 percent. This figure dropped from 1,494 at the start of September 2026 to just nine currently. In contrast, the number of sub-5 percent variable rate mortgages has remained broadly stable. This has led some borrowers to choose deals that track the Bank of England’s base rate. Millions of mortgage holders are expected to reach the end of their current deals within the next two years. Bank of England forecasts indicate that just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028.

While some had anticipated falling rates this year due to improved economic conditions, the Iran war has upended those expectations. The conflict has also contributed to wider pressure on the cost of essential bills. On Friday, the average cost of diesel in the UK rose above two pounds per litre for the first time, according to the RAC motoring group. Domestic energy prices also increased by 4 percent at the start of October. Forecasters predict a 16 percent increase when the regulator Ofgem sets its next price cap for January. The government is currently under pressure to provide support to those most likely to struggle with payments at the Budget later this month.