Mortgage rates have risen for the first time in eight months – a move that will have consequences for anyone who takes out a fixed rate.
The average two-year fixed-rate mortgage rate has risen fractionally to 4.98%, according to the latest data Money facts.
Meanwhile, the typical five-year fixed rate also rose 0.02% last month to 5.02%.
While these increases may be small, they come after months of mortgage rate cuts. The last month-on-month increase that Moneyfacts registered was in February.
But over the past year, rates for two-year fixed deals have fallen by 0.42% – from 5.40% to 4.98%. By comparison, five-year fixed deals have only fallen by 0.05% over the same period.
Rachel Springall, financial expert at Moneyfacts, explained that one of the reasons for the interest rate increase was this month swap ratesused by lenders to set their prices.
“Borrowers may be disappointed to see fixed mortgage rates rise,” she says. “Volatile swap rates and a cautious approach among lenders have led to an abrupt halt to consecutive monthly average interest rate declines.”
She said borrowers should prepare for more of the same in the future. “There may be little interest rate movement from lenders in the coming weeks, meaning subdued sentiment will continue.
“Inflation is expected to peak at 4%, which would then be double the desired target of 2%, so an imminent cut in the key rate by the Bank of England seems unlikely.
“But even with the three cuts in the base rate since the beginning of 2025, fixed mortgage rates could rise anyway, for example in response to volatile swap rates.”
What should you do if you refinance?
If you are reading this in preparation for renewing your mortgage agreement, you don’t have to worry about the recent interest rate increases.
As mentioned, they come after months of interest rate cuts by lenders. Springall explained that borrowers who took out a two-year fixed rate in October 2023 would have paid an average interest rate of 6.47%, compared to 4.98% now.
‘That’s,’ she explained, ‘a difference of £225 a month in repayments on a £250,000 mortgage over 25 years.’
Moreover, there is also plenty of choice, especially for borrowers with lower equity.
Springall added: “Even with a slight decline in product choice across the mortgage spectrum, the combined number of deals available to borrowers with a 5% or 10% down payment or equity is at a 17-year high.
“The relaxation of lending and income rules is a positive step in improving mortgage affordability challenges, but first-time buyers are still waiting for more affordable housing to be built.
“Whether purchasing or refinancing, it remains essential that borrowers seek independent advice to navigate the mortgage maze and don’t feel pressured into closing a deal because of the Budget rumor mill.”