Average five-year mortgage rate hits 6% for first time in three years

The average interest rate on new five-year fixed mortgages has hit 6% for the first time in three years, according to figures cited by Moneyfacts, a financial information service.

The rate increase reflects rising wholesale funding costs for lenders, driven by higher yields on government bonds, or gilts. Moneyfacts described the situation as "brutal" for borrowers. Two-year fixed mortgages now average 5.98%.

The number of mortgage deals priced below 5% has collapsed. Moneyfacts reports that 1,494 sub-5% deals existed at the start of September, but only nine remain now, a 99% drop. Home buyers and those renewing fixed deals have seen roughly 1,500 deals vanish in that period alone.

The major High Street lenders accelerated rate increases during September. Barclays raised selected fixed rates four times. HSBC, Lloyds Bank, Nationwide, NatWest, Santander and TSB each made three rounds of increases. The five-year rate has reached its highest level since September 2023. Two-year rates stand at their highest since December 2023.

Rachel Springall, finance expert at Moneyfacts, said rising mortgage rates will be "disastrous news for borrowers" and that those approaching the end of fixed deals should "seek advice and compare deals carefully". She noted that lenders' wholesale funding costs have climbed as a result of rising gilt yields, making further rate rises "inevitable".

The source attributes recent rate increases to international concern over rising prices, interest rates and government borrowing costs, with the Iran war cited as a driver of broader economic uncertainty.

More than five million homeowners are expected to see monthly repayments increase by the end of 2028, according to Bank of England forecasts. The timing matters because millions of mortgage-holders will reach the end of current deals within the next two years, forcing them into the market at higher rates.

Some borrowers have shifted toward variable rate mortgages, which track the Bank of England base rate. The number of sub-5% variable rate deals has remained broadly stable, Springall said.