Mortgage rates for UK homeowners have risen as a global bond market selloff pushes up the cost of government borrowing. The average five-year fixed mortgage rate has reached 5.95 per cent, its highest since October 2023, while the average two-year fixed residential rate has climbed to 5.94 per cent, its highest since July 2024.
UK government bond yields rose sharply on Thursday as markets worldwide came under pressure. The yield on 30-year gilts, as UK government bonds are known, moved above 6 per cent, its highest level in almost 29 years.
Ten-year UK borrowing costs rose to levels last seen in 2007, while five-year gilt yields reached their highest point since 2008.
The selloff is part of wider pressure across international bond markets. Concerns about the economic effects of the continuing conflict in the Middle East, alongside higher oil and gas prices, have increased fears that inflation will remain elevated.
US government borrowing costs have also risen sharply. Bond markets in Europe and Asia have faced pressure.
For borrowers, the connection has been swift. Deals below 5% have been withdrawn across the lending market. Barclays withdrew its 4.75% two-year fixed rate and its 4.93% five-year deal for new customers this week, while Nationwide, Virgin Money and TSB said they were raising rates.
Up to 700,000 households whose fixed-rate deals expire by the end of 2026 could face mortgage bill increases of as much as £5,000 a year when they refinance.
One example illustrates the gap between the rates many borrowers secured and those now available. A homeowner with a £250,000 property and a £187,500 mortgage at a 75% loan-to-value ratio, leaving a five-year deal at 1.3% for a two-year fix at 5.03%, would see monthly repayments rise from around £733 to roughly £1,024. That is an increase of £291 a month, or nearly £3,492 a year.
Inflation is running at 3.1%. The Bank of England is expected to raise interest rates twice in the final quarter of 2026, and an increase in November would be the first in more than three years.
Andrew Bailey, the Bank of England governor, has warned that the Bank Rate may have to rise from 3.75.
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