Mortgage rates hit five-year high as lenders react to three base rate hikes

Average interest rates on mortgages are at a five-year high, new data reveals, as mortgage lenders price in three back-to-back base rate rises from the Bank of England.

The Moneyfacts UK Mortgage Trends Treasury Report has found that the average rate on a two-year fixed-rate mortgage is now 2.86%, the highest level seen since 2015. This is an increase from 2.58% this time last year.

Meanwhile, at 3.01%, the five-year equivalent is at its highest level since 2016. This is the sixth consecutive month that these two fixed-rate deals have seen their average rates increase. Although there is a significant difference in the length of each deal, they are separated by the slimmest of margins in terms of their respective interest rates – at just 0.15%, this is the narrowest spread seen since 2013.

Looking at the rates available on tracker mortgages in April, the average two-year tracker rate for all loan-to-values (LTVs) rose by 0.18% month-on-month to 2.21%. This is an increase of 0.63% since December, almost in line with the rise in the base rate over that time. The Bank of England has raised rates three times since December, to 0.75% from a record low of 0.1%.

The average Standard Variable Rate (SVR) mortgage ticked up by 0.10% to 4.71% in April to reach a two-year high. Borrowers sitting on the average SVR could potentially reduce their outgoings by over £200* per month by securing a mortgage in line with the current average two-year fixed rate, Moneyfacts has found.

While rates on offer across the board are increasing, mortgage deals are becoming harder for borrowers to grab. Moneyfacts found that, at just 21 days, average shelf life has plunged to a low last seen in August 2021. For context, the average in April 2020 was more than double at 48 days. This means borrowers will have to act fast to snap up the best deals available, says Eleanor Williams, finance expert at Moneyfacts.

 “Those hoping to secure a new mortgage may wish to act sooner rather than later to lock in a competitive option, as not only have average rates continued on an upwards trajectory this month, but prospective borrowers may find that their selected products are not on offer for long.” She notes that April’s shelf-life drop reflects a busy period of repricing in while lenders reacted to three back-to-back base rates and ongoing economic volatility.

The notable rises in the cost of two- and five-year fixed deals, on average, reflects the fact that rates have risen across the majority of lending tiers, Williams adds.

“While fixed rates are not intrinsically linked to base rate and therefore are not set to rise exactly in line with its fluctuations, it is interesting to note that, since December 2021, both the two- and five-year overall average fixed rates have risen by 0.57% and 0.42% respectively. This compares to the average two-year base-rate tracker rate, which has risen by 0.63% since December,” she says.

"As there is no guarantee rates will not continue to climb, the incentive to secure a competitive new fixed rate to provide shelter from potential further rate volatility remains and, as our top tables show, there are still products with extremely competitive rates available, but the support and advice of a broker in securing these could be wise.”

*Calculations based on £200,000 outstanding mortgage balance over a 25-year term, with rates of 4.71% or 2.86%.