Mortgage ‘pain’ not easing for borrowers as average fixed rates climb
Average two‑year and five‑year fixed mortgage rates have risen to their highest levels since May and April 2022, respectively, as banks adjust to higher swap rates and inflation pressures. The Bank of England’s base rate is expected to stay unchanged this week, but the trend suggests further increa…
In the latest snapshot of the UK mortgage market, average fixed‑rate deals have surged to levels not seen since the spring of 2022. According to data from Moneyfacts, the two‑year fixed rate climbed to 5.73% on Tuesday, up from 5.68% the day before, while the five‑year fixed rate reached 5.78%, its highest since April 12. These figures reflect a second wave of rate increases by major lenders, prompted by higher swap rates and persistent inflationary pressures.
What’s driving the jump in fixed rates?
Mortgage rates are largely tied to the cost of borrowing for banks, which in turn depends on the Bank of England’s base rate and the market swap rate. Although the base rate sits at 3.75% and is expected to hold steady in the upcoming decision on Thursday, the swap rate – the benchmark used by lenders to price fixed‑rate mortgages – has risen sharply. Moneyfacts notes that several banks have already raised rates twice in September, a move that has tightened the supply of available products. The number of fixed‑rate mortgage options fell from 7,458 to 7,426 in a single day, underscoring the market’s contraction.
Borrowers feel the pain
For homeowners, the rise means a steep increase in monthly payments and a loss of the low rates that were common in early 2022. Rachel Springall, a finance expert at Moneyfactscompare, warned that borrowers with five‑year fixed deals that will not expire until 2027 are particularly vulnerable. “Back in February 2022, there were sub‑2% fixed mortgages available, so moving off this rate will be a huge shock for borrowers,” she said. The early repayment charges that apply when a deal ends before its term can also add to the cost, and lenders and brokers are urged to explain these implications clearly.
Bank of England’s role and future outlook
While the Bank of England’s base rate is expected to remain unchanged this week, analysts point out that the link between the base rate and fixed mortgage rates is not direct. The central bank’s policy decisions influence the broader economic environment, but lenders set rates based on swap market conditions and their own risk assessments. If inflation continues to exert pressure, the Bank may raise rates in the coming months, which would likely push fixed mortgage rates even higher.
What to expect next
As the market reacts to the upcoming base rate announcement, lenders may continue to adjust their offerings. The withdrawal of some deals from the market suggests that any new or returning products could carry higher rates. Borrowers should monitor their current mortgage terms, consider the cost of early repayment, and stay informed about potential changes in the swap rate and base rate. The next few weeks will be crucial for those looking to lock in a new fixed deal or refinance an existing one.
Key takeaways for homeowners
- Average two‑year fixed rates are at 5.73%, the highest since May 2022.
- Average five‑year fixed rates are at 5.78%, the highest since April 2022.
- The Bank of England’s base rate is expected to hold at 3.75% this week.
- Higher swap rates are driving lenders to raise fixed mortgage rates.
- Borrowers with long‑term fixed deals may face significant early repayment charges.
- The market offers fewer fixed‑rate products, indicating tighter supply.
Why this matters
These rising rates directly affect the affordability of homeownership for millions of UK households. Understanding the dynamics between the base rate, swap rate, and fixed mortgage offers can help borrowers make informed decisions about refinancing or locking in new deals.
FAQs
- What is a swap rate? A swap rate is a benchmark used by banks to price fixed‑rate mortgages, reflecting the cost of borrowing in the money market.
- Will the Bank of England raise rates soon? The base rate is expected to stay at 3.75% this week, but future increases are possible if inflation remains high.
- How do early repayment charges work? These fees apply when a borrower ends a fixed‑rate deal before its term, compensating the lender for lost interest.
- Can I refinance now? Refinancing depends on your current mortgage terms, the availability of new deals, and your credit profile.
- What should I ask my lender? Inquire about potential future rate changes, early repayment fees, and the availability of lower‑rate options.
Why it matters
Rising fixed mortgage rates increase monthly payments for homeowners and can strain household budgets, making it essential for borrowers to understand how these changes affect their long‑term financial plans.
Key points
- Average two‑year fixed rates hit 5.73%, highest since May 2022
- Average five‑year fixed rates at 5.78%, highest since April 2022
- Bank of England base rate expected to hold at 3.75% this week
- Higher swap rates are driving lenders to raise fixed mortgage rates
- Fewer fixed‑rate products available, tightening market supply
- Borrowers with long‑term fixed deals face significant early repayment charges
Frequently asked questions
What is a swap rate?
A swap rate is a benchmark used by banks to price fixed‑rate mortgages, reflecting the cost of borrowing in the money market.
Will the Bank of England raise rates soon?
The base rate is expected to stay at 3.75% this week, but future increases are possible if inflation remains high.
How do early repayment charges work?
These fees apply when a borrower ends a fixed‑rate deal before its term, compensating the lender for lost interest.
Can I refinance now?
Refinancing depends on your current mortgage terms, the availability of new deals, and your credit profile.
What should I ask my lender?
Inquire about potential future rate changes, early repayment fees, and the availability of lower‑rate options.
