Rachel Reeves sends mortgage rates soaring to highest in 18 months

Rachel Reeves‘ first Budget helped push up borrowing costs, with the average interest rate on a five-year fixed-term mortgage jumping the most in over a year.

Between November and December this year the average five-year fixed-rate mortgage rate on the market recorded the biggest month-on-month jump seen since August 2023, according to financial information website, Moneyfacts.

At the start of November, the average five-year fixed-rate mortgage across all deposit sizes was 5.09%. Moneyfacts said by the beginning of December this had leapt up 0.19 percentage points to 5.28%.

It also reported the average two-year fixed-rate mortgage on the market jumped 0.13 percentage points from 5.39% in November to 5.52% at the start of December.

Fixed mortgage rates are typically lower now than they were at the start of the year. At the start of January this year, the average five-year fixed rate was 5.55%, while the average two-year fixed-rate deal was 5.93%.

Capital Economics Chief Economist Paul Dales said the rises would directly respond to the increase in swap rates and gilt yields seen in the weeks after Ms Reeves’ Budget and around the US election.

He told the Telegraph that policies in the Budget suggest inflation will be a bit higher than otherwise, adding that as a result, rates in the future will be a bit higher, too.

Mr Dales said: “That’s just filtering through into the financial markets, and now into the cost of borrowing paid by households.”

The Bank of England base rate has been cut twice this year and now stands at 4.75%. Threadneedle Street’s next base rate decision is due on December 18.

Rachel Springall, a finance expert at Moneyfacts, said some fixed rates have ticked up recently amid volatile swap rates, which lenders use to price deals.

She added: “One positive outcome” was a slight uptick in product availability and a calming in the average shelf life of a mortgage, which rose from 17 days in November to 21 days in December.

Ms Springall said: “This indicates lenders are not repricing or pulling deals as aggressively as they were during October. However, lenders will now need to grapple with any future uncertainty surrounding interest-rate pricing while aiming to hit any year-end targets.

“Borrowers will hope mortgage rates will drop next year and while there is speculation over multiple cuts to the Bank of England base rate, stubborn inflation can delay such decisions.

“In addition, the present market proves a base-rate cut does not always mean fixed mortgage rates will immediately fall if there are other economic challenges in play for lenders to consider.”

Ms Springall also blamed the Chancellor’s first Budget for increasing rates for borrowers, saying there was a lot of volatility in the markets about Ms Reeves’ first fiscal statement and wider global market uncertainty.

Moneyfacts counted 365 deals available at 95% LTV. Overall, it counted 6,486 mortgage products available at the start of December, up from 6,402 at the start of November.

Ms Springall warned: “Those stuck paying rent may feel their homeownership dreams are scuppered because of the lack of affordable housing, which will take time to improve.

“As we move into 2025, it will be interesting to see how lenders will balance supporting their existing customers and enticing new business as the future of interest rates remains unpredictable.”

The research was released as Barclays announced that, as of Tuesday, it is reducing rates across its five-year fixed-rate homeowner purchase and remortgage range.

The revamp includes a five-year fixed-rate house purchase deal with no product fee for borrowers with a 40% deposit, reduced from 4.34% to 4.20%.