Average two-year fixed-rate mortgage rates in the UK are approaching 6%, adding to concerns about affordability for homebuyers, homeowners looking to remortgage and property investors. The latest figures from Moneyfacts show that borrowing costs have continued to rise, following a similar increase in five-year fixed-rate mortgages earlier this month.
The movement in mortgage rates comes at a challenging time for the property market, with borrowers facing uncertainty over future financing costs and household budgets remaining under pressure. Although the average rates provide an indication of wider market trends, the deals available to individual borrowers will vary depending on their financial circumstances, deposit size and lender criteria.
Two-Year Fixed Mortgage Rates Approach 6%
Moneyfacts data shows that the average two-year fixed-rate residential mortgage has increased to 5.97%, up from 5.68% a month earlier.
This brings the average close to the 6% threshold, a level last reached in December 2023, when the rate stood at 6.01%. The latest increase highlights the renewed upward pressure on mortgage pricing after a period in which borrowers had access to lower fixed-rate deals.
Five-year fixed-rate mortgages have followed a similar pattern. Their average rate rose above 6% earlier this month for the first time in almost three years, although it has since edged down to 5.99%. A month ago, the average stood at 5.73%.
While the slight easing in five-year rates may offer some relief, the figures indicate that fixed-rate borrowing has become more expensive over the past month.
The increase in average rates does not mean every borrower will face a mortgage rate close to 6%. Moneyfacts tracks a broad range of products, and the rate offered by a lender will depend on factors such as the size of the deposit, the property’s value, the amount borrowed and the applicant’s credit profile.
Nevertheless, rising averages provide an indication of the changing conditions facing people who need to arrange a mortgage or renew an existing deal.
Thousands of Mortgage Deals Remain Available
Despite the increase in borrowing costs, borrowers still have a considerable number of products to compare.
According to Moneyfacts, approximately 8,560 residential mortgage products are currently available across the market. However, the number of deals available does not necessarily mean every borrower will qualify for the most competitive rates.
Lenders assess applications according to their own affordability requirements and eligibility criteria. A borrower with a larger deposit and a strong credit history may have access to different products from someone with a smaller deposit or a more complicated financial situation.
For homeowners approaching the end of a fixed-rate deal, reviewing the available options early can help them understand how a change in interest rates could affect their monthly repayments.
Those considering a property purchase may also need to revisit their budgets if the rates available to them are higher than expected. Even a relatively small change in the interest rate can affect the total amount paid over the life of a mortgage.
Buy-to-Let Mortgage Rates Add to Landlords’ Costs
Landlords are also facing elevated borrowing costs, with average two-year fixed-rate buy-to-let mortgages currently standing at 5.63%. Five-year fixed-rate products are averaging 6.01%.
Moneyfacts reports that 5,192 buy-to-let mortgage products are available to landlords. As with residential mortgages, the rate and terms offered will depend on the lender, the property’s characteristics and the landlord’s financial circumstances.
Higher mortgage rates can put pressure on rental property profitability, particularly for landlords who rely on borrowing to finance their portfolios. Those remortgaging may find that their new repayments are considerably higher than under an older deal, potentially reducing the income left after mortgage payments and other property expenses.
Landlords considering additional purchases will also need to account for financing costs when assessing whether an investment is likely to deliver an acceptable return.
However, borrowing costs are only one part of the equation. Rental income, property prices, maintenance expenses, insurance, taxation and periods without tenants all influence the overall performance of a buy-to-let investment.
Rising Rental Yields Could Help Offset Higher Costs
The increase in mortgage rates comes as average gross buy-to-let yields have reached their highest level since 2011, according to separate figures from Paragon Bank.
The bank reported an average gross yield of 7.22% in the third quarter, compared with 7% in the previous quarter and 6.94% a year earlier.
Stronger yields may provide some support for landlords dealing with more expensive borrowing. However, gross yield measures annual rental income against a property’s value before expenses are deducted. It should not be confused with net profit or the return a landlord receives after paying mortgage interest and running costs.
The extent to which higher rental yields can offset rising mortgage rates will therefore vary between properties and portfolios. A landlord with a relatively low loan-to-value ratio may be better placed to manage higher rates than one with substantial borrowing.
Investors should also avoid assuming that rising national yields automatically translate into stronger returns in every local market. Purchase prices, achievable rents and tenant demand can differ significantly between locations.
Mortgage Brokers Urge Borrowers Not to Panic
Mark Harris, chief executive of mortgage broker SPF Private Clients, has advised borrowers not to be discouraged by the increase in average mortgage rates.
He noted that Moneyfacts’ averages cover a broad selection of products, meaning borrowers may still be able to find two-year fixed-rate deals priced below 6%.
His comments underline the importance of comparing mortgage options rather than assuming the headline average is the rate every applicant will pay.
A whole-of-market mortgage broker may be able to help borrowers identify products suited to their circumstances and explain the differences between available deals. This can be particularly useful when lenders are adjusting their pricing in response to movements in financial markets.
Borrowers should consider more than the initial interest rate when comparing products. Arrangement fees, valuation charges, early repayment penalties and other conditions can affect the overall cost of a mortgage.
A deal with a slightly higher interest rate may sometimes be more suitable if its fees are lower, depending on the size of the loan and how long the borrower expects to keep the mortgage.
Could Securing a Rate Early Provide Protection?
Borrowers who expect to purchase a property or remortgage in the coming months may be able to reserve a mortgage rate in advance, subject to the lender’s rules and the circumstances of the application.
Securing a rate early can offer some protection if rates rise further before completion. Some lenders also allow borrowers to switch to a lower rate before completion if their pricing improves, although this depends on the product and the lender’s terms.
Homeowners should check how long a mortgage offer remains valid and whether any conditions apply before making a decision.
Those whose current fixed-rate deals are due to expire soon may benefit from exploring their options well before the end date. Leaving the process until the last minute could limit the time available to compare lenders and assess the financial implications.
However, borrowers should avoid making decisions based solely on predictions about where mortgage rates will move next. Interest rates can change in response to economic developments and financial market expectations, making future pricing difficult to predict with certainty.
What Higher Mortgage Rates Could Mean for the Housing Market
More expensive mortgage borrowing could influence buyer confidence and property market activity. If buyers can borrow less for the same monthly repayment, some may need to reduce their budgets, increase their deposits or delay their purchases.
Homeowners who need to remortgage may also have less disposable income if their monthly payments rise significantly. This could affect their ability to save, spend on other goods and services or fund improvements to their properties.
Property investors may become more selective when considering new purchases, particularly where higher borrowing costs reduce the expected return. Some may focus on locations where property prices are more affordable relative to achievable rents, while others may decide to postpone expansion until financing conditions improve.
The wider impact will depend on how mortgage rates develop and how buyers, sellers and lenders respond. Property prices, wages, inflation, employment conditions and the availability of mortgage finance will all play a role in shaping market activity.
Borrowers Should Focus on Affordability and Total Costs
With average two-year fixed mortgage rates approaching 6%, borrowers may need to take a more careful approach to financing decisions.
Homebuyers should calculate what they can comfortably afford each month, allowing for other household expenses and the possibility of future changes in their financial circumstances. Homeowners preparing to remortgage should compare their existing deal with the options available and consider whether the new repayments will fit their budget.
Landlords, meanwhile, should assess rental income against mortgage payments and all other property-related expenses before committing to new investments or refinancing arrangements.
Although average mortgage rates have increased, suitable deals may still be available for borrowers who meet lenders’ eligibility requirements. Comparing products, reviewing fees and seeking professional advice where appropriate can help borrowers make informed decisions.
Ultimately, the latest figures from Moneyfacts highlight the importance of looking beyond headline mortgage rates. Whether buying a home, remortgaging or investing in rental property, understanding the full cost of borrowing will be essential as the market continues to adjust to changing financial conditions.
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