UK mortgage rates surge past six percent amid inflation fears
The average five-year fixed mortgage rate in the UK has surged past six percent for the first time in three years, driven by lenders raising prices amid renewed inflationary pressures. According to Moneyfacts, the typical five-year fixed rate now stands at six percent, while the average two-year rate is close behind at 5.98 percent. This marks the highest rates since September 2023 for the five-year term and December 2023 for the two-year term. Major lenders including Barclays, HSBC, Lloyds, Nationwide, NatWest, Santander, and TSB have all increased their mortgage rates multiple times in recent weeks.
Rachel Springall, a finance expert at Moneyfacts, described the rise in average fixed mortgage rates as “disastrous news for borrowers.” Data from the Homeowners Alliance shows that the monthly cost of a £250,000 loan fixed at six percent for five years is £158 higher than the same loan locked in at 4.94 percent, the average rate at the start of February before the US-Iran war escalated.
The volatility in mortgage rates has been fueled by changes in swap rates, which lenders use as a benchmark for pricing fixed-rate mortgages. These rates reflect expectations for future interest rates over different terms. While the Bank of England has kept its interest rate unchanged at 3.75 percent, economists anticipate a potential hike in the near future. Lenders are adjusting their rates in anticipation of the Bank of England’s response to economic shocks, including rising energy prices and inflationary pressures.
The Bank of England’s Decision Makers’ Panel survey indicated growing uncertainty, with one-year ahead inflation expectations rising to 3.3 percent from 3.1 percent in August. Longer-term inflation expectations and wage growth predictions have also increased. Dave Ramsden, an interest rate-setter at the Bank of England, noted that inflation risks have “tilted more to the upside” since the last decision in September, suggesting that a rate hike could be on the horizon if inflationary pressures continue to build.