Mortgage Rates Could Stay Near 6 Percent Through 2027

UK homeowners could face mortgage rates close to 6 percent throughout 2027 as rising energy costs linked to the conflict in the Middle East fuel inflation and increase expectations of further Bank of England interest rate hikes. Economists expect borrowing costs to remain elevated, potentially increasing monthly repayments for households refinancing their mortgages.

Ruth Gregory, deputy chief UK economist at Capital Economics, and Thomas Pugh, chief economist at RSM UK, both expect the Bank of England to raise its base rate to 4 percent in November and then to 4.25 percent in February.

According to the source report, the central bank's base rate currently stands at 3.75 percent. Financial markets anticipate as many as four rate increases over the next year, while most economists expect two hikes in the coming months.

Higher market expectations have pushed swap rates, which influence fixed-rate mortgage pricing, to between 4.65 percent and 4.75 percent. Lenders typically price mortgages above these levels to account for their costs and profit margins.

The average two-year fixed mortgage rate has reached 5.96 percent, while the average five-year fixed rate stands at 5.99 percent, according to the report. Mortgage rates have reached their highest levels since 2023, although lower-priced deals remain available.

Alper Kara, professor of banking and finance at Brunel University, expects mortgage rates to remain around current levels into 2027, with some borrowers potentially paying more.

He said, "Average two- and five-year fixed rates are currently around 6 percent. I expect that mortgage rates will remain around these levels into 2027, with some borrowers paying more."

Nick Mendes, mortgage technical manager at John Charcol brokers, also expects rates to remain close to current levels, while warning that the risk of further increases outweighs the prospect of immediate reductions.

Mendes said, "Mortgage rates are likely to stay around today's levels in 2027, although the risk is that they edge higher rather than lower."

He highlighted the potential impact on homeowners whose existing fixed-rate agreements are expiring. Borrowers who secured five-year deals in late 2021 or early 2022 at around 1.5 percent could see monthly payments on a £150,000 mortgage over 25 years rise from approximately £600 to £870 at current best five-year rates.

Caitlyn Eastell, a personal finance analyst at financial information website Moneyfacts, said the prospect of further interest rate increases in 2027 would be "a blow" to borrowers hoping for relief after facing higher living costs.

Tracker and variable-rate mortgage customers could also face higher costs because their interest rates are generally linked to the Bank of England's base rate. Unlike fixed-rate borrowers, they may see their payments increase when the base rate changes rather than when an existing deal expires.

David Hollingworth, associate director of communications at L&C Mortgages, said, "Those considering a variable rate will need to be sure that they have enough flex in their budget to cope with climbing payments."

Peter Stimpson, director of mortgages at lender MPowered, sees a possibility that the central bank could begin cutting rates in spring 2027 if inflation eases. Such a move could help mortgage rates fall, offering a more favorable outcome than current market expectations suggest.

Stimpson said, "For customers who have seen fixed-rate mortgages rise by over 1 percentage points since April, the reverse pattern is very possible."

The outlook depends heavily on developments in the Middle East and their effects on energy prices, inflation and government borrowing costs. A ceasefire could substantially change the economic outlook, while continued pressure on energy prices could sustain inflation and borrowing costs.

Ruth Gregory does not expect the first interest rate cut until the end of 2027, with rates falling below their current level of 3.75 percent in 2028. This suggests that borrowers may have to contend with elevated mortgage costs for an extended period.

For homeowners approaching the end of a mortgage deal, Alper Kara warned that borrowers leaving particularly cheap five-year fixed agreements could face substantial repayment increases, while those already paying relatively high rates might experience a smaller change.

Kara said, "Someone coming off a particularly cheap five-year fix could face a sizeable increase in repayments. Others whose existing deal is already relatively expensive may experience less change."

Mortgage brokers say many lenders allow customers to secure a new mortgage rate up to six months before their existing agreement expires. This option can protect borrowers against subsequent rate increases, although the final outlook for 2027 remains dependent on inflation and the Bank of England's policy decisions.