What’s Driving the Rise in Mortgage Rates?
Banks and building societies across the UK have raised their five-year fixed mortgage rates to an average of 6%, marking the first time this level has been reached in three years. The increase comes amid ongoing volatility in bond markets, which has led lenders to adjust pricing despite the Bank of England holding its base rate steady since December 2023. The shift reflects growing market expectations of higher borrowing costs over the medium term, even without direct intervention from the central bank.
The upward pressure on fixed-rate mortgages stems primarily from turbulence in the global bond market, where yields on government debt have risen due to inflation concerns and shifting monetary policy outlooks. Lenders use these bonds as a benchmark for setting long-term mortgage rates, so when bond yields increase, fixed-rate deals become more expensive. Although the Bank of England has kept its base rate at 5.25% since December, financial markets are pricing in fewer near-term cuts than previously anticipated, contributing to the upward trend in mortgage pricing.
How Are Homebuyers and Homeowners Affected?
Prospective buyers face higher monthly repayments on new five-year fixed deals, potentially reducing affordability and slowing demand in the housing market. Existing homeowners nearing the end of their current fixed terms may see significant increases when remortgaging, especially if they locked in lower rates during 2021 or 2022. Industry analysts warn that sustained rates at this level could dampen market activity, particularly among first-time buyers and those with tighter budgets.
Some economists suggest that if inflation remains stubborn or bond market volatility persists, five-year fixed rates could climb further, possibly testing the 6.5% mark later this year. However, others argue that any significant rise would depend on clearer signals from the Bank of England about future rate moves. For now, lenders appear to be reacting to market sentiment rather than direct policy changes, making the outlook dependent on broader economic data releases in the coming months.
Could Rates Go Higher From Here?
Why are mortgage rates rising if the Bank of England hasn’t changed the base rate? Mortgage rates, especially fixed-rate deals, are influenced by bond market yields, not just the base rate. Rising bond yields due to inflation expectations have pushed up funding costs for lenders, leading to higher fixed rates even without a base rate change.
Frequently Asked Questions
Will this affect people on variable-rate mortgages? Those on tracker or standard variable rates are more directly tied to the base rate, so they have not seen immediate changes. However, if the Bank of England eventually raises rates, variable deals could increase in line with any policy shift.
Is now a bad time to lock in a five-year fixed mortgage? While 6% represents a higher cost than in recent years, fixing now may protect against further increases if markets continue to trend upward. Borrowers should assess their risk tolerance and compare offers, as some lenders may still offer slightly lower rates depending on credit profile and loan-to-value ratio.