Average five-year mortgage rate rises above 6% - what can borrowers do now?
The average price of a five-year, fixed-rate mortgage has surpassed 6% today (Tuesday 4 July).
Twelve months ago, the average five-year mortgage rate stood at 3.89%, but as of this morning it's 6.01%, according to Moneyfacts data.
It's the first time rates have hit these heights since November last year, and is unwelcome news to the estimated 700,000 who still need to remortgage this year.
Here, Which? looks at why five-year rates have shot up, and delves into what first-time buyers and homeowners can do to find the best possible mortgage deal.
What will higher rates mean for you?
Rates have climbed continually almost every day for the past five weeks.
The rapid increase is piling more pressure on homeowners who still need to remortgage this year, or those who are trying to get on the housing ladder.
Fixing at a rate of 6.01% on a £200,000 loan paid back over a 25-year period will cost you £1,290 a month. In contrast, paying back the same amount on last July's average rate (3.89%) would have cost you £1,044 a month.
Check out our mortgage repayment calculator for help crunching the numbers.
Why are mortgage rates still increasing?
Interest rates are highly dependent on the Bank of England base rate, which has been hiked 13 times in a row since the end of 2021.
The Bank has continually increased the rate (currently 5%) in a bid to calm inflation, which stands at 8.7%. The target is 2%.
Mortgage providers have significantly increased their rates as a result. Experts believe further base rate hikes are on the way this year, so mortgage costs are also expected to continue climbing.
- Find out more: the Bank of England base rate and your mortgage
Five-year fixes vs two-year fixes
Most borrowers either opt for a two-year or five-year fix when locking in a mortgage rate.
Despite them costing more, demand is currently greater for two-year terms as homeowners are gambling on interest falling by 2025.
Should rates be lower in two years' time, they will then be able to remortgage onto a cheaper deal - but there's no guarantee this will happen, as the past year has proven how volatile interest rates can be.
The average rate for a two-year fix surpassed 6% a fortnight ago, and now stands at 6.47%.
The graph below shows how rates have dramatically changed over the past two years, according to Moneyfacts data.
The lowest rates on five-year fixes
While the average rate on all deposit sizes has hit a grim milestone, those who search for the best deal can still find cheaper rates.
The table shows the cheapest deals available to first-time buyers and remortgagers.
| Loan-to-value (LTV) | Lender | Initial rate | Fees |
|---|---|---|---|
| 60% | Family Building Society | 4.99% | £999 |
| 75% | Post Office Money | 5.2% | £1,495 |
| 85% | Post Office Money | 5.24% | £1,495 |
| 90% | First Direct | 5.39% | £490 |
| 95% | Loughborough Building Society | 5.85% | £499 |
Source: Moneyfacts. Rates correct as of 4 July 2023.
To see the best rates on two-year fixes at varying loan-to-value (LTV) amounts, check out our story on the cheapest mortgage rates.
What to do if you need to remortgage
With 700,000 borrowers coming off fixed deals in the second half of this year, and a further 1.6 million in 2024, remortgaging is a hot topic.
In such a high-interest environment, it pays to be aware of the best steps to take when you need to refinance.
- Find out when your current deal ends: If you have less than six months left on your fixed term, shop around for a new mortgage. If you have longer left, you might need to pay early repayment charges if you remortgage early. Take advice from a mortgage broker on your options.
- Work out your current loan-to-value (LTV): Your repayments and any increases in the value of your home could mean you can remortgage at a lower LTV, which tends to result in better rates (for example. 80% would be cheaper than 85%).
- Consider overpaying on your existing deal: Before your current deal expires, overpaying can help you gain more equity in your home and potentially open up cheaper remortgaging deals. Our recent story on overpaying shows how it could benefit you.
- Get a quote from your current lender: If you're coming to the end of your term, this option might be available in your online mortgage account. If it's not, you might need to contact your lender.
- Research deals from other lenders and take independent advice: Use comparison sites to get an idea of the rates currently available and consider taking advice from a broker.
- Don't fall onto your lender's standard variable rate (SVR): Should you fail to remortgage onto a new deal, you'll be automatically put onto your existing provider's SVR. The average SVR is currently 7.52%, so your repayments will be more expensive.
- Decide on a mortgage term (eg two-year or five-year): There's little to choose in rates, so pick a term based on your own circumstances.
- Keep an eye out for any additional up-front fees: Some deals might not be as cheap as they first seem. Compare the overall cost before settling. Bear in mind that you can lock in a new rate six months in advance, and can switch to a better deal with your agreed lender up until the new rate kicks in.
You can find out more in our story on what to do if you need to remortgage. If you're worried about making your mortgage payments, see our guide on what to do if you can't pay your mortgage.
The government also unveiled a new mortgage support charter last month, offering three key pledges from lenders to help those struggling with their home loan repayments.
