Average five-year mortgage rate hits 6% for first time in three years

The average interest rate on five-year fixed mortgages reached 6% for the first time in three years, according to data from financial information service Moneyfacts. The rate on two-year fixed deals sits at 5.98%.

The climb reflects higher wholesale funding costs faced by lenders, driven by rising gilt yields on government bonds. International economic uncertainty, including tensions involving Iran, has pushed up the cost of government borrowing over the long term, which lenders pass on to mortgage customers.

Major High Street banks accelerated rate increases throughout September. Barclays raised selected fixed rates four times during the month, while HSBC, Lloyds Bank, Nationwide, NatWest, Santander and TSB each made three rounds of increases.

The tightening market has eliminated nearly all affordable options for borrowers. The number of fixed-rate deals priced below 5% fell by 99%, from 1,494 at the start of September to nine now, according to Moneyfacts. In contrast, the number of sub-5% variable-rate mortgages has remained broadly stable, prompting some borrowers to pursue deals that track the Bank of England's base rate.

Rachel Springall, finance expert at Moneyfacts, called the situation "brutal" for borrowers. She said rate rises are "inevitable" because of lenders' higher wholesale funding costs from rising gilt yields. Those approaching the end of a fixed deal should "seek advice and compare deals carefully," she added. Some lenders permit borrowers to lock in a rate three to six months before their current deal expires.

The mortgage market squeeze comes as roughly five million homeowners face increased monthly repayments by the end of 2028, according to Bank of England forecasts. Many borrowers had expected rates to fall this year as economic conditions improved, but international tensions have reversed that trajectory.

Rising mortgage costs compound broader cost-of-living pressure. Diesel prices topped £2 per litre for the first time, and domestic energy prices rose 4% in early October, with forecasters predicting a 16% increase when Ofgem sets its next price cap for January.