Market news
Mortgage rates hit a five-month high, two days before the Bank of England decides
The average two-year fixed mortgage rate has risen to 5.67%, its highest level since June, after roughly 25 lenders repriced upward in the past seven days.
What happened
Moneyfacts data shows the average two-year fixed mortgage rate has reached 5.67%, the highest it's been since June. The average five-year fix is at 5.72%, an April high. Around 25 lenders have raised rates on at least some of their fixed deals in the past week, including HSBC, Lloyds, Nationwide, Barclays, TSB, Santander, Skipton Building Society and Nottingham Building Society. Some of the increases are small: TSB raised selected residential rates by 0.15 percentage points, and Principality moved product-transfer rates by around 0.10 to 0.18 points. Family Building Society pulled some fixed-rate deals from sale entirely rather than reprice them.
This extends the wave of repricing that started in the first week of September. What began with four major lenders a week ago has spread to roughly 25.
Why lenders are moving
Lenders fund fixed-rate mortgages by borrowing at swap rates and adding a margin, so when swap rates rise, new and renewed fixed deals get more expensive. Swap rates have kept climbing through September, and the 10-year gilt yield has pushed above 5%, its highest in 18 years. Rachel Springall at Moneyfactscompare has pointed to renewed volatility in the swap market putting pressure on lenders' pricing margins, making further adjustment close to inevitable. The volatility traces back to the military conflict between the US and Iran, which has revived inflation concerns and, with them, market expectations that the Bank of England could raise rates in November rather than cut them.
What it costs, worked through
Take a £200,000 repayment mortgage with 20 years left to run. On a fix ending now at 4.5%, the monthly payment is about £1,265. Moving onto today's average two-year fix of 5.67%, the same mortgage costs about £1,395 a month, roughly £130 more, or just over £1,550 over a year. That gap would have been smaller two weeks ago and could be wider again by the time you actually come to remortgage, which is the reason lenders keep stressing the point: the rate on offer changes week to week, and locking in early only fixes the number you saw at the time you locked.
What Thursday could change
The Bank of England's Monetary Policy Committee meets on 17 September, two days from now. It held Bank Rate at 3.75% at its last meeting on 30 July, on a 6-3 vote, with three members wanting to raise it to 4.00%. A hold or a rise on Thursday wouldn't reverse the fixed-rate increases already priced in over the past two weeks; those are driven by swap rates and gilt yields, which move ahead of the Bank's own decision, not by it directly. A surprise cut would ease some of the pressure on lenders' funding costs, but Adam French at Moneyfacts has warned that fixed rates have only just caught up with earlier swap rate rises, and that unless swap rates fall back significantly, further increases are more likely than not in the weeks ahead.
What to do if your fix is ending soon
If you're mid-way through a fixed deal, none of this touches your rate; it's locked until that fix ends. If you're within six months of your renewal date, most lenders let you reserve a rate now and switch to a cheaper one later if rates fall before completion, so there's little downside to checking what's on offer rather than waiting. If your current deal already ended and you've drifted onto your lender's standard variable rate, the gap between that and a new fix is usually large enough to make switching worth doing regardless of which way the market moves next.
Frequently asked questions
Does this mean my mortgage payment is going up this month?
Only if you're taking out a new fixed deal, reserving a rate for one that's about to end, or already sitting on your lender's standard variable rate. If you're partway through an existing fix, your rate stays exactly where it is until that fix ends, whatever lenders do to their new-business pricing this week.
Will rates keep rising before or after Thursday's Bank of England decision?
There's no way to know for certain. Fixed rates are driven by swap rates and gilt yields, which have already moved ahead of Thursday's meeting, so the decision itself is unlikely to reverse the increases of the past two weeks. Analysts at Moneyfacts have said further rises are more likely than falls unless swap rates ease back.
Should I lock in a rate now before more lenders reprice?
That depends on how close you are to needing a new deal, not on the general direction of the market this week. If your current fix ends within the next six months, most lenders let you reserve today's rate and still switch to a lower one later if pricing improves before you complete, which removes most of the risk of acting early.
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Set up your free mortgage timeline and we'll tell you when it's worth locking in a new rate, based on when your current deal actually ends.
Examples are illustrative and rounded. Your own mortgage offer and lender confirm your actual figures and dates. This is information, not financial advice. For advice on your circumstances, speak to a mortgage adviser regulated by the FCA.