Five-year fastened mortgages break 6% barrier as lenders preserve pushing charges greater

Mortgage rates have broken through the 6 per cent barrier for the first time in three years, as lenders continue to hike prices on inflation concerns. 

The typical five-year fixed rate is now 6 per cent, according to rates scrutineer Moneyfacts, its highest since September 2023. 

Two-year rates are not far behind at 5.98 per cent, the highest level since December of that year. 

It means homeowners could face paying £2,000 more per year for their mortgage now than they would have if they fixed in February.  

Those with more equity in their homes can still get rates below 5 per cent, though these are also fast disappearing.  

Moneyfacts says 99 per cent of sub-5 per cent mortgages have vanished from the market since the beginning of September. 

There were 1,500 available and now there are nine, excluding deals only available in Northern Ireland. 

Virtually all major lenders have hiked mortgage rates in recent weeks. 

Barclays increased selected fixed rates on four occasions, while HSBC, Lloyds Bank, Nationwide, NatWest, Santander and TSB each made three rounds of hikes. 

Variable deals, such as trackers, are still widely available below 5 per cent. These follow the base rate and the likelihood is that will rise and so will their payments. 

Rachel Springall, finance expert at Moneyfacts, said: ‘Average fixed mortgage rates rising back to three-year highs will be disastrous news for borrowers. 

‘Those coming to the end of a fixed deal would be wise to seek advice and compare deals carefully, particularly as borrowers could secure a new deal a few months before their existing mortgage ends.’

Analysis by Homeowners Alliance shows how a typical homeowner on a five-year fix could end up paying more than £2,000 extra per year on their mortgage if they fixed now, compared to in February this year. 

At the start of February, someone taking out a £250,000, two-year fixed mortgage on a 25 year term could typically get a rate of 4.85 per cent, but now that would now be 5.98 per cent – costing them £168 more per month or £2,016 over the year. 

In the same period, someone taking out a five-year mortgage on the same terms would have seen the average rate increase from 4.94 per cent to 6 per cent. 

This would increase their annual payments by £1,896.

Why are mortgage rates rising? 

At the beginning of the year, most borrowers were able to get rates below 4 per cent with two-year fixes going as low as 3.5 per cent.

The Bank of England was forecast to cut the base rate of interest throughout 2026 because inflation was on a downward trajectory. 

Cutting the base rate reduces borrowing costs for lenders and would result in mortgage rates falling.  

However, the escalation of hostilities in the Middle East and resulting rises in energy costs have led to fears of higher inflation being stoked once again. 

While the Bank of England held base rate at 3.75 per cent in September, the sixth consecutive hold since December 2025, it is now anticipated that it will raise interest rates.

The idea is that this would stem inflation, by making it more expensive to borrow and encouraging people to spend less.

Investors are now betting that rates will jump from the current rate to 4.75 per cent by this time next year and potentially as high as 5 per cent. 

Bond yields, in other words the returns on Government borrowing, have also been rising sharply due to inflation, rising public sector debt and concerns about Chancellor John Healey’s upcoming Budget.

This matters for mortgage holders because bond yields also heavily influence mortgage rates.

There are hundreds of thousands of households who locked into super cheap five-year deals in 2021 and the first half of 2022 who now face a painful shock when they come to remortgage.

In October 2021, the average of the lowest five-year fixed rates across the top ten lenders was just 1.05 per cent, according to broker L&C Mortgages. 

Now, those households face moving on to a rate of 5 per cent plus and their monthly payments increasing by hundreds.  

Ian Harris, president of estate agent body NAEA Propertymark said: ‘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. 

‘Equally, homeowners coming off fixed-rate deals may face significantly higher repayments, which could affect their decision to move.

‘This makes realistic pricing and good financial preparation more important than ever.’

What should you do if you need a new mortgage? 

Experts predict that mortgage lenders will continue to raise rates in the weeks ahead. 

Borrowers who need to remortgage in the next few months are being urged to fix now and lock in a lower rate.

Some lenders allow remortgage customers to secure a new deal six months in advance, while for others it is three. 

Customers can usually switch to a different deal if rates fall in the meantime. 

David Hollingworth, associate director at broker L&C Mortgages and This is Money’s mortgage agony uncle, said: ‘Barclays’ latest move highlights just how quickly the mortgage market can change.

‘Rising funding costs are putting pressure on lenders which may lead to further repricing in the weeks ahead. Borrowers who are considering fixing would be wise to act sooner rather than later.

‘Rates can be pulled from the market with little or no notice, so securing an option now offers protection against further upward pricing movements, while retaining the flexibility to switch if conditions become more favourable before completion.’

It is a good idea to consider rates from different banks and building societies, and not just stick with your existing lender. 

They may not have the best deal at the precise time that you need to remortgage. 

Consulting a mortgage broker can help with this. They are often fee-free for customers as they charge fees to the lender they take a mortgage out with instead. 

When choosing a mortgage, it is also vital to consider any arrangement fees you’ll be charged. 

These will push up the overall cost of the mortgage, especially if you roll them into the balance of the loan. 

A higher rate with no fee could therefore end up being cheaper in the long term than a low rate that charges £1,000-plus in fees.