Five-year fixed mortgage rates see largest rise in over a year

As expected, average mortgage rates rose throughout November, but it’s not all bad news for borrowers.

The average five-year fixed mortgage rate rose from 5.09% at the start of November to 5.28% in December, according to the latest Moneyfacts UK Mortgage Trends Treasury Report.

This is the biggest monthly rise to average five-year fixed rates since August 2023.

Meanwhile, average two-year fixed mortgage rates also rose from 5.39% to 5.52% in the month to December.

This monthly uptick is likely to come as a blow to borrowers, particularly those who prefer the security of locking in a rate for the long-term. However, it wasn’t unexpected after October’s Autumn Budget.

Unlike fixed rates, variable rates have dropped since the Bank of England cut the base rate in November, with the average Standard Variable Rate (SVR) falling from 7.95% to 7.85% in the month to December.

But, despite this drop, choosing a fixed deal is still likely to be a cheaper option for most borrowers than reverting to their lender’s SVR.

“Borrowers will hope that mortgage rates will drop next year, and while there is speculation over multiple cuts to the Bank of England base rate, stubborn inflation can delay such decisions,” Rachel Springall, Finance Expert at Moneyfacts, noted.

“In addition, the present market proves that a base rate cut does not always mean fixed mortgage rates will immediately fall if there are other economic challenges in play for lenders to consider,” she added.

Silver linings for borrowers

In more positive news for borrowers, after declining in November, the number of mortgage products available rose to 6,486 in December. This compares to a choice of just 5,694 products one year ago.

Furthermore, products were available for longer as the average shelf-life of a mortgage deal increased from 17 days to 21 days between November and December.

“This indicates that lenders are not re-pricing or pulling deals as aggressively as they were during October,” Springall commented.

“However, lenders will now need to grapple with any future uncertainty surrounding interest rate pricing while aiming to hit any year-end targets,” she cautioned.

First-time buyers have particularly benefited from this increase in product choice, as the number of mortgage deals with a 95% loan-to-value (LTV) rose to 365, its highest level since May 2022, while the number of deals with 90% LTV rose to 762.

This comes after the welcome introduction of Income Plus mortgages from Leeds BS last week, which are designed to help first-time buyers get on the property ladder.

These 95% LTV mortgage deals allow eligible first-time buyers to borrow up to 5.5 times their annual earnings, compared to 4.5 times their income on its standard lending products. Leeds BS calculates this could help first-time buyers to borrow up to £66,000 more on average than under their previous lending criteria.

“Stretching a deposit is a key issue for buyers who are faced with a dwindling stock of affordable housing, which will take time to improve. Product innovation or enhancement should be celebrated and support for new buyers will be integral to keep the mortgage market moving,” Springall pointed out.

Millions facing higher payments

Although fixed mortgage rates are expected to fall in 2025, albeit at a slower rate than first thought, mortgage payments are likely to rise for many of those coming to the end of a fixed deal.

The Bank of England’s latest Financial Stability Report found that 37% of fixed mortgage accounts were taken out before rates started to rise in 2021, so these borrowers are yet to feel the effect of higher rates.

For example, the average five-year fixed rate in December 2019 was 2.74% and, five years later, this has almost doubled to 5.28%.

As a result, the report estimates that 4.4 million households could see their mortgage payments rise over the next three years, with 420,000 seeing their monthly payments increase by more than £500.

On the other hand, around 2.4 million households could benefit from falling monthly payments over the next few years, as they may be on variable rates or coming off fixed deals that were taken out when rates were higher.

Whatever your situation, it can be useful to speak to a mortgage broker if you’re buying a home or want to remortgage. Brokers can help you understand your options and work out which type of mortgage is best suited for you.

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