Mortgage rates hit three-year high ahead of crunch Bank of England vote
Mortgage rates have hit a three-year high as lenders race to price in an anticipated rise in interest rates this week.
The average mortgage rate jumped to 5.89pc before the Bank of England’s decision on Thursday, up from 5.83pc a month ago, according to analyst Moneyfacts. This is the highest it has been since November 2023.
The Bank’s nine-member Monetary Policy Committee is widely expected to raise rates for the first time since August 2023 after conflict in the Middle East drove inflation up to 3.5pc in September.
Financial markets are predicting a 0.25 percentage point increase to 4pc, nearly a year after it was cut to 3.75pc.
Fears of further rises into 2027 have prompted major lenders to start pricing in higher swap rates – a measure of future interest rates used as a benchmark to determine fixed-rate mortgage deals.
Since January the average two-year fixed deal has risen from 4.83pc to 5.97pc, while five-year rates have breached 6pc, up from 4.91pc, Moneyfacts analysis has shown.
It means homeowners refixing their mortgages could face an additional £170 a month in repayments compared to January – equivalent to more than £2,000 extra per year.
Rachel Springall, of Moneyfacts, said delaying plans to secure a new mortgage deal was “already coming back to haunt borrowers”.
She said: “With the rate on a typical two-year fixed mortgage rising by more than 1pc, it would cost over £2,000 a year more in repayments when securing a deal now than at the start of 2026.”
Around 2.3 million households will reach the end of their fixed rates next year, according to industry body UK Finance.
David Hollingworth, at broker L&C Mortgages, said many homeowners had already been rushing to fix early in the hope of “limiting the impact of spiking rates”.
He said: “Borrowers coming toward the end of their current deal have been all too aware that the market has moved against them.
“With rates shifting so quickly borrowers have had to rush to grab rates and avoid missing out when future movement is so uncertain.”
Swap rate volatility following the outbreak of war in Iran in late February has wreaked havoc in the mortgage market this year.
Lenders have pulled deals after just 16 days on average, compared with 43 days in 2019, after wild swings in expectations around future borrowing costs.
Ms Springall added that while some high street lenders “could pivot” if future pricing stabilised, the lowest two-year fixed rates were still well above the average at the start of September.