UK mortgage rates have climbed to their highest levels in years as rising government bond yields increase funding costs for lenders.
The average five-year fixed residential mortgage rate has risen to 5.95%, its highest level since October 2023.
The average two-year fixed mortgage rate has reached 5.94%, the highest level since July 2024.
The increases follow the sharp sell-off in UK government bonds, which has pushed borrowing costs higher across financial markets.
Gilt yields influence the swap rates used by banks and building societies to price fixed-rate mortgages. As swap rates rise, lenders generally face higher costs when offering borrowers fixed interest rates.
Five-year swap rates have now reached their highest level since 2023, increasing the risk of further mortgage repricing if bond-market pressure persists.
The impact will be particularly important for homeowners approaching the end of existing fixed-rate deals, who could face significantly higher monthly repayments when refinancing.
Higher mortgage rates also reduce the amount prospective buyers can afford to borrow, potentially weakening demand across the housing market and slowing transaction volumes.
Nathan Emerson, chief executive of Propertymark, said economic uncertainty and affordability pressures were increasingly influencing decisions around buying and selling property.
He said consumers were becoming more cautious with household finances as the effects of wider economic uncertainty spread into the property market.
For investors, the key transmission mechanism is now clear: higher gilt yields are feeding into higher swap rates, which are in turn raising mortgage costs for households.
If gilt and swap rates remain elevated, pressure could increase on housebuilders, estate agents, mortgage lenders and other businesses exposed to housing transactions and discretionary household spending.
The immediate question for the housing market is whether the bond sell-off begins to reverse. Without a meaningful fall in gilt and swap rates, mortgage affordability is likely to remain under pressure.
Investor takeaway: The bond-market sell-off is now feeding directly into UK household borrowing costs, with the average five-year fixed mortgage rate reaching 5.95% — its highest level since October 2023. Persistently high gilt and swap rates risk putting further pressure on housing affordability, transactions and consumer finances.
