UK mortgage rates have risen for the first time this month, according to a report by Moneyfacts.
The average mortgage rate is now 5.58% for a two-year fixed rate deal, the data suggested, with a fixed five-year deal now an average of 5.6%.
While mortgage rates are still lower than the high of 5.9% seen in April this year following the Iran war and blockade of the Strait of Hormuz, the rise – potentially linked to fresh strikes in the area – will likely frustrate those hoping to see the downward trend continue.
The Office for Budget Responsibility (OBR) had previously forecast in March this year that the average interest rate on UK mortgages will be roughly 5 % by 2029.
This increase will affect not only standard mortgages but also self-build mortgages and renovation mortgages, which already tend to have higher rates.
Most mortgages in the UK are fixed-rate, so many homeowners won’t see the full impact immediately, but costs will rise when current deals expire or when new borrowers take out mortgages in the coming years.
What the rise in mortgage rates means for homeowners and buyers
For anyone looking to remortgage or take out a new mortgage, higher interest rates mean higher monthly payments.
Homeowners on fixed deals have some time before payments increase, but when those deals end, borrowers could face significant rises. Buyers will also find borrowing more expensive than in recent years, making affordability an important consideration.
"It will be incredibly frustrating for borrowers to see rates rise back up to where they were a month ago. The positive progress over recent weeks now feels all but lost, but what the market needs is a period of stability," said Rachel Springall, finance expert at Moneyfacts. She added that around 100 lenders had temporarily suspended their deals while they reconsidered their pricing.
The mortgage rate increase comes even though the Bank of England decided to keep the bank rate at 3.75% in June.
Self-builders and renovators
Mortgages for self-build projects or home renovations usually carry higher interest rates than standard home loans.
With average fixed mortgage rates now around 5.58 %, these borrowers are likely to see even higher costs.
Anyone planning a renovation or self-build should carefully consider how rising rates could affect monthly repayments and overall project budgets.
How reliable is the OBR forecast
The OBR’s forecast covers the entire stock of mortgages, so the 5 % figure is an average rather than a fixed rate for every new loan.
Some new mortgages may be higher or lower depending on the lender, deposit size, and loan type.
The forecast signals that UK borrowers should prepare for rising mortgage costs in the coming years, whether they are buying a home, remortgaging, or taking out specialist loans like self-build or renovation mortgages.
