Mortgage rates have climbed to their highest level in three years, adding further pressure on homebuyers even as several major lenders announce fresh cuts to selected products. The average new mortgage rate now stands at 5.89%, up from 5.83% at the start of October, according to Moneyfactscompare.co.uk. The last time rates were higher was November 2023.
The increase comes ahead of tomorrow's Bank of England interest rate decision, with economists expecting a 0.25 percentage point rise in Bank Rate. However, signs of renewed competition are emerging, with Nationwide, Halifax and Barclays all announcing reductions to selected fixed-rate products.
Lenders cut rates despite expected hike
Nationwide has cut rates by up to 0.15 percentage points, while Halifax and Barclays have introduced reductions of up to 0.22 and 0.30 percentage points respectively. The moves offer some relief to borrowers, but the wider mortgage market remains considerably more expensive than at the start of the year.
Moneyfacts figures show the average two-year fixed rate has jumped from 4.83% in January to 5.97% in November, its highest level since December 2023. For someone borrowing £250,000 over 25 years, that increase adds £169 to monthly repayments, equivalent to £2,028 a year.
The average five-year fixed rate has also reached 6%, while the typical 10-year fix stands at 6.32%. Even the cheapest two-year fixed deals from Barclays, HSBC, Lloyds Bank, NatWest and Santander remain an average of 0.44 percentage points higher than at the start of September.
Competition targets remortgage borrowers
The latest reductions highlight the growing competition among lenders, particularly for remortgage business. Nationwide's two-year fixed remortgage deal at 60% loan-to-value now stands at 4.99%, joining HSBC in offering selected remortgage products below 5%. Halifax has also targeted remortgage borrowers and existing customers switching products.
The cuts come despite expectations that the Bank of England will raise Bank Rate by 0.25 percentage points this week. Fixed mortgage pricing largely follows swap rates rather than Bank Rate directly. Five-year swaps currently stand at around 4.62%, suggesting lenders have already factored in an increase.
However, Nationwide has increased rates on selected two-year tracker products at 80% loan-to-value and above by up to 0.10 percentage points. Tracker borrowers face more immediate exposure to a Bank Rate increase, while lenders could also raise standard variable rates. Moneyfacts estimates that a 0.25 percentage point increase would add around £37 a month, or £444 annually, to repayments on a £250,000 mortgage over 25 years, assuming the mortgage rate rises from 5% to 5.25%.
Affordability concerns persist
The sharp rise in borrowing costs presents another challenge for estate agents trying to maintain sales momentum. Buyers securing mortgages now face significantly higher repayments than those who arranged finance at the start of 2026. The increase could further squeeze affordability, particularly among first-time buyers and households already stretching their budgets.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said lenders have struggled to adjust pricing amid volatile swap rates. She commented: “Mortgage rates have risen to a three-year high as a result of lenders grappling to re-adjust rates amid swap rate volatility.”
Springall believes some lenders could reverse recent increases if financial markets settle following the Bank of England's decision. She added: “Lenders could well pivot away from making aggressive rises over the coming weeks, but most of the damage is unlikely to unwind entirely.”
Moneyfacts also warns that borrowers approaching the end of fixed-rate deals face a substantial payment shock. The average standard variable rate currently stands at 7.13%, compared with 5.97% for a typical two-year fix. On a £250,000 repayment mortgage over 25 years, that represents a difference of around £182 a month. Borrowers coming off existing deals could therefore face significantly higher costs if they fail to secure a replacement mortgage.
Attention now turns to tomorrow's Monetary Policy Committee announcement and, crucially, its guidance on the future direction of interest rates. A more cautious outlook could ease pressure on swap rates and encourage further mortgage price cuts. But with inflation risks persisting and lenders still adjusting to higher funding costs, any sustained return to cheaper mortgage borrowing remains uncertain.
