The cost of the UK’s most popular mortgages has surged to its highest level since August, as rising government borrowing costs and turbulence in the debt market continue to affect homebuyers. According to data from Moneyfacts, five-year fixed-rate mortgages hit 5.3% on Friday, marking the highest level in five months. The increase is putting pressure on borrowers and could slow the market recovery that had gained momentum following rate cuts by the Bank of England last summer.
UK government borrowing costs have steadily climbed in recent months, driven by concerns over the government’s tax-hiking budget, weak growth forecasts, and broader market pressure on government bonds. However, the sharp rise in yields accelerated at the start of 2025, fueled by concerns over persistent inflation and expectations that interest rates may remain elevated for an extended period.
While fierce competition in the mortgage market had previously shielded consumers to some extent, the recent rise in gilt yields has begun to push up borrowing costs. After the Bank of England’s August rate cut, five-year borrowing costs briefly dropped below 5.1%, but they have been slow to adjust to the recent spike in government bond yields.
Despite the growing uncertainty in the market, UK homebuilders have reported better-than-expected results. Companies like Persimmon Plc and Taylor Wimpey Plc have indicated that sales rates are recovering from the shock caused by higher borrowing costs. However, the market remains uncertain, with mortgage affordability continuing to be a key concern. Taylor Wimpey CEO Jennie Daly highlighted that rising mortgage rates are a significant consideration for potential homebuyers as they navigate the changing financial landscape.
As mortgage rates remain elevated, the future of the housing market could depend on how long rates stay high and the overall economic outlook.
