Fixed Mortgage Rates Hit 6%

Average fixed mortgage rates have crossed 6% for the first time in around three years. Moneyfacts data published on 5 October shows the average two-year fixed rate at 5.98% and the average five-year fixed at 6.00%. The number of fixed deals priced below 5% has collapsed from 1,494 in early September to just nine, excluding Northern Ireland-only products. In September alone, Barclays repriced four times, and HSBC, Lloyds, Nationwide, NatWest, Santander and TSB three times each.

The wider market is feeling it. Nationwide reports that house prices fell 0.2% in September, halving annual growth to 0.8% and leaving the average UK home at £274,251. Bank of England figures show mortgage approvals for house purchase slipped to 54,900 in August, while the effective rate on newly drawn mortgages rose from 4.45% to 4.60%.

For buyers and remortgagers, the question is no longer whether rates will fall this year - it is how to protect yourself while they move the other way.

Energy, Inflation and a Split Bank of England

The driver is the conflict in the Middle East and the energy shock that has followed. In its September statement, the Bank of England noted that Brent crude had risen 36% and UK wholesale gas 78% since the run-up to its July forecasts. Petrol hit 161.3p a litre in August, its highest level since November 2022.

That is feeding through to inflation. ONS figures show CPI rose to 3.1% in August, up from 2.9% in July - the second monthly rise in a row. The Bank now expects inflation to reach around 3.75% by the end of this year and slightly above 4% in early 2027.

On 17 September, the Monetary Policy Committee voted 6-3 to hold Bank Rate at 3.75%. The three dissenters - Megan Greene, Catherine Mann and Huw Pill - voted for an immediate rise to 4%. The majority was clear that if the conflict persists for an extended period, "it is likely that policy may have to tighten."

Mortgage lenders do not wait for the Bank to act. Fixed rates are priced off swap rates, which move with market expectations of where Bank Rate is heading. With a rise on 5 November now a real possibility, much of that expectation is already built into the deals on offer today.

Why Waiting for Rates to Settle Could Cost You

It is tempting to sit tight until the picture is clearer. But in a rising market, hesitation tends to work against you.

• Secure an offer now. Most mortgage offers are valid for three to six months. Locking in a rate today protects you if lenders reprice again before you complete - and if rates fall instead, a good adviser can often switch you to a cheaper deal before completion.
• Remortgagers should start early. If your current fixed rate ends in the next six months, you can usually secure a new deal now. Compare a product transfer with your existing lender against the whole market, rather than defaulting to whatever you are offered.
• Affordability is getting tighter. Lenders stress-test applications against higher rates, so as pricing rises, the amount you can borrow on the same income can fall. Having every pound of your income recognised matters more than ever.
• A softer market can favour buyers. With prices dipping and approvals falling, motivated sellers are more open to negotiation - and a buyer with finance already agreed in principle is in a stronger position.

What to watch next

The Autumn Budget on 28 October could bring tax changes that affect take-home pay, particularly for the self-employed and company directors. No changes to stamp duty are currently planned.

First-time buyers in England should also watch for more detail on the government's new Your First Home scheme, announced on 26 September. It will offer new-build purchases with a 2.5% deposit and a 20% government-backed equity loan, with income and price caps still to be confirmed. A very small deposit brings its own risks, so it is worth taking advice on whether it suits you.

Then comes the Bank of England's next decision on 5 November.

What This Means for Contractors and Complex Earners

When rates rise, mainstream lenders tend to tighten their criteria at the same time. That hits hardest for people whose income does not fit a standard payslip.

• Contractors and locums assessed on two or three years of tax returns may find a recent rate increase simply is not counted.
• Company directors who retain profit in the business can see affordability capped at salary and dividends drawn.
• RSU and bonus earners may have variable pay discounted by half or ignored altogether by automated systems.
• Professionals moving into partnership or practice ownership can be asked to wait one to two years before their new income counts.

With affordability already squeezed by higher rates, any income a lender leaves out of its calculation hurts more than it would in a falling market. Specialist lenders who manually underwrite complex income can make a material difference to what you can borrow - and to whether you can borrow at all.

Take Control of Your Mortgage Strategy

You cannot control where rates go next, but you can control how prepared you are. At Cleerly, our independent, whole-of-market advisers specialise in structuring mortgages for contractors, business owners and professionals with complex pay. We track lender pricing daily across the market, so we can move quickly when a good rate appears - and secure it before it is withdrawn.

If you are buying in the next few months, or your current deal ends within six months, now is the time to talk.