Bank of England figures show the interest rate paid across all outstanding mortgages has doubled since 2021 to reach 4 per cent, the highest level in more than 15 years, as rising borrowing costs continue to weigh on mortgage approvals and house-moving activity.
The average interest rate paid by UK homeowners on their mortgages has doubled over the past five years, reaching 4 per cent by the end of August, according to data from the Bank of England. The figure, which covers all outstanding mortgage balances rather than just newly issued loans, compares with a rate of just 2 per cent in December 2021. The rise has been driven in part by lenders increasing rates in recent weeks amid inflation concerns linked to the escalation of the war in Iran and fresh rises in energy prices, with the Bank’s data showing this is the highest average rate on existing mortgages since February 2009.
A steep climb from historic lows
Just under five years ago, homeowners could secure mortgages with rates as low as 1.1 per cent. Today, according to Moneyfacts, the average rate on a new two-year fixed mortgage stands at 5.91 per cent. The increase has been driven largely by rising Sonia swap rates, which lenders use to price fixed-rate mortgage products and which directly affect the cost to banks of providing loans. The Bank of England has not recorded average outstanding mortgage rates as high as 4 per cent since it began collecting this particular dataset in 2016, though a comparable measure last showed rates above that threshold in February 2009.
More recent figures suggest the upward trend has continued. By July 2026, the average rate across the UK’s existing mortgage stock had reached 3.97 per cent, edging closer still to the 4 per cent mark highlighted in the Bank’s August data. Meanwhile, newly drawn mortgages carried an average rate of around 4.45 per cent in the same month, meaning new borrowers continue to pay significantly more than the typical homeowner with an existing mortgage deal.
Why the average keeps rising
A key factor behind the increase is that higher rates are gradually working their way through the entire pool of outstanding mortgages. Many homeowners who previously secured very low fixed rates are now reaching the end of those deals and are being forced to refinance at today’s higher rates. As a result, the average mortgage rate across all borrowers can continue climbing even if rates on new mortgages themselves begin to stabilise.
Approvals falling as buyers hold back
The Bank of England’s data also showed that mortgage approvals for house purchases fell to their lowest level since December 2023, with just under 55,000 purchase loans approved in August, the fourth consecutive month the figure has remained below 60,000. According to analysis by estate agent Savills, this represents 33,086 fewer mortgage approvals over the four months to August compared with the same period the previous year, a fall of 13 per cent. More recent figures show approvals for house purchases fell further still, to roughly 56,100 in July, below the preceding six-month average of around 60,800.
Lucian Cook, head of residential research at Savills, said the decline reflected recent instability in mortgage markets. “The weakness in these numbers reflects the recent volatility in the mortgage markets, which have made it more expensive for people to take on a bigger mortgage,” he said. “This has been compounded by the lack of housing wealth accumulated by home owners over the past four years, given the pressure on house prices since September 2022. Upsizers, in particular, are putting off plans to move, until they have more confidence in their personal finances and their ability service more debt.”
Higher rates appear to be particularly discouraging homeowners looking to move to larger properties, a pattern that is especially pronounced in London and the South East, where property prices and typical mortgage balances are higher. For anyone attempting to upsize, the combination of a bigger loan and a higher interest rate can substantially increase monthly repayments, prompting many to delay moving altogether. Economic uncertainty, the removal of stamp duty incentives and a subdued housing market more broadly have also contributed to the slowdown, according to the Bank’s figures.
No sign yet of a wider arrears crisis
Despite the mounting affordability pressures, there is little evidence so far of a broader wave of mortgage distress. Outstanding mortgage balances in arrears stood at around £19.7 billion in the second quarter of 2026, with the proportion of mortgage balances in arrears remaining steady at around 1.1 per cent. New repossessions were also lower than in the previous quarter. This suggests the current situation is better characterised as one of housing-market stagnation and affordability strain, rather than a significant increase in mortgage defaults.
At the same time, borrowing patterns appear to be shifting, with mortgages carrying a loan-to-value ratio above 90 per cent accounting for approximately 8.4 per cent of new lending in the second quarter of 2026, the highest proportion recorded since 2008. This points to a growing number of buyers entering the market with comparatively small deposits.
Calls for government intervention
Julie Palmer, managing partner at financial and real estate advisory firm BTG, said it was essential for the government to act on interest rates in the upcoming Budget. “Reducing the cost of borrowing by getting control of interest rates, addressing the issue of affordability across the board and looking at reforming stamp duty, are all changes being called for in the Budget,” she said.
The government has meanwhile unveiled its Your First Home scheme, announced over the weekend, in an effort to stimulate activity in the housing market. Under the scheme, first-time buyers could secure a property with a deposit of just 2.5 per cent, combined with an equity loan worth 20 per cent of the property’s value.
However, not all experts believe the scheme will be sufficient to revive the market on its own. Simon Gammon, managing partner at Knight Frank Finance, said lower mortgage rates would likely have a greater impact than the new support scheme. “The Government’s announcement of a first-time buyer support scheme will provide a boost to sentiment, particularly in more affordable parts of the country, but mortgage rates remain the bigger constraint,” he said. “A meaningful recovery in transaction volumes is likely to require a sustained improvement in borrowing costs.”
