Why gilt yields, not the Bank of England, are now driving mortgage rates
For months, the explanation for rising mortgage rates has been swap rates, and before that, oil prices. This week, for the first time, lenders and brokers started pointing somewhere else: gilt yields, and by extension, the government’s own finances ahead of the Budget on 28 October.
Nationwide and Virgin Money raised rates on Monday. TSB and Halifax raised them again on Thursday, this time with 30-year gilt yields sitting close to 6% and 10-year yields at 5.5%, levels one lender source described as not seen for decades. Mortgage approvals fell again, leasehold reform got a real deadline for the first time, and the average two-year fix set another high for the year.
Last updated: Friday 1 October 2026.
This week at a glance
| Gilt yields, not swap rates, were the story this week. Lenders and brokers pointed to the bond market for the first time, with the 28 October Budget now the thing everyone's watching | |
| Four lenders raised rates across two separate days. Nationwide and Virgin Money on Monday, TSB and Halifax on Thursday | |
| 30-year gilt yields pushed towards 6%, with 10-year yields around 5.5%, both near multi-year highs | |
| The average two-year fix moved to around 5.93%, the latest in a run of weekly rises rather than a one-off | |
| Mortgage approvals fell for a second month to 54,900, while consumer credit borrowing rose to £4.4bn, still below its six-month average | |
| Leasehold reform moved a step closer, with fee caps and a bill promised before Christmas |
Rates rose twice this week
Lenders repricing this week
TSB’s own numbers give a sense of scale. Its 60% LTV two-year fix moved from 5.05% to 5.15%, the 75% LTV equivalent rose to 5.3%, and at 90% LTV it climbed from 5.44% to 5.54%. One small exception moved the other way: TSB actually cut its five-year holiday let rate at 60% LTV, a reminder that even an upward week rarely means every single product moves in lockstep.
The gilt market, explained
Gilt yields reflect what it costs the government to borrow, and lenders lean on them to price fixed-rate mortgages over longer terms. Yields rising ahead of the 28 October Budget point to market nerves about fiscal policy, not just short-term swap pricing.
Mortgage lenders price fixed deals off swap rates, and swap rates move with gilt yields. When the gilt market comes under this much pressure, this close to a Budget already surrounded by tax speculation, lenders have a direct reason to reprice that has nothing to do with the Bank of England itself. No CPI release and no MPC decision fell within this window, the next decision is 5 November, which makes the gilt story the one actually worth explaining to anyone asking why rates keep climbing without a Bank of England meeting in sight.
Average mortgage rates this week
Average fixed rates this week
| Deal | This week | Last week | Direction |
|---|---|---|---|
| Average 2-year fix | 5.93% | 5.91% | Up |
| Average 5-year fix | 5.94%–5.95% | 5.94% | Up |
Two slightly different five-year figures were published for 1 October, 5.94% and 5.95%, both tracing back to the same Moneyfacts source via different pages. Neither is more authoritative than the other, so both are shown rather than picking one.
Fewer approvals, more credit cards
The Bank of England’s Money and Credit report, covering August and published Tuesday, points to a market cooling in a specific way.
Borrowing data this week
Mortgage approvals
54,900
Down from 56,100, a second consecutive monthly fall
Net consumer credit borrowing
£4.4bn
Up from £4.1bn, though still below the six-month average
One analyst framed it bluntly: higher borrowing costs and ongoing uncertainty are slamming the brakes on the mortgage market, with approvals for both purchases and remortgages falling again. The detail worth sitting with is the shift toward consumer credit. It suggests some households are managing short-term costs through credit cards and personal loans rather than through their mortgage, which is a different kind of financial pressure to the one headline mortgage figures usually capture.
Leasehold reform finally gets a date
At the Labour Party conference in Liverpool, Angela Rayner and Andy Burnham made housing announcements on the same day, and for once there was a specific timeline attached.
Leasehold reform: what's moving
Ground rent and service charge fees are set to be capped, removing one of the biggest unknowns for leasehold buyers and remortgagers.
Government has signalled the leasehold reform bill will be introduced before the end of the year, rather than slipping further.
Separate changes would affect how Right to Buy applies to newly built council housing, relevant to anyone buying in that category.
Rayner’s framing was pointed, calling it confronting the scandal faced by millions of leaseholders. Burnham committed to a leasehold reform bill before Christmas, a genuine deadline rather than another round of consultation promises, and confirmed Right to Buy would be further reformed, removing the right to buy for tenants of newly built council stock.
The housing market this week
Zoopla’s index, published Tuesday, put the average UK house price at £273,000, with annual growth slowing to 0.8%, down from 1.7% a year earlier. Its own average mortgage rate reading reached 5.2%, a three-year high, adding an estimated £150 a month to the typical buyer’s repayments. One detail stood out: a quarter of newly listed homes in September had already been on the market earlier in the year, and six in ten of those relistings came back at a lower price than before, a fairly clear signal that sellers are recalibrating rather than holding firm. Zoopla’s Richard Donnell linked the slowdown directly to the Middle East conflict pushing up energy prices and mortgage rates, and trimmed his forecast for the year to around 1.1 million sales, down from 1.2 million last year.
HMRC’s transaction data, also published this week, told a similar story. On a non-seasonally adjusted basis, transactions fell 11% on the month and 9% on the year, with one commentator pointing to interest rate and Budget uncertainty clouding buyer decisions, even though stamp duty itself has already been ruled off the table for this Budget.
Separately, EY’s latest banking outlook forecast UK mortgage lending growth slowing to 2.2% in both 2027 and 2028, as higher unemployment and softer income growth weigh on demand, though it noted most of the adjustment from borrowers coming off historically low rates is now largely behind us. Worth treating as general market context rather than something to apply to any individual client’s situation.
What to watch
What to watch next week
| The Autumn Budget, 28 October. The main event this whole edition has been building towards, expect gilt yields and fixed pricing to move around the announcement itself, not just in the days before | |
| Gilt yields and swap rates, day to day. If yields settle after the Budget, that's a signal fixed rates could stabilise too | |
| The leasehold reform bill, expected before Christmas, no fixed date yet, but worth watching for anyone with a leasehold purchase or remortgage in progress | |
| The Bank of England's next MPC decision, 5 November. The base rate still sits at 3.75% and is separate from the gilt-yield story currently driving fixed rates |
What this means for you
If your deal is ending this year, this week doesn’t change the advice, but it does sharpen the reason behind it. Rates rose on something unrelated to the Bank of England, which means waiting for a quiet Bank of England calendar won’t necessarily help you. Reserve a rate now, and keep the option to switch if gilt yields ease.
If you own or are considering a leasehold property, it’s worth knowing a real timeline now exists for fee caps and wider reform. Nothing changes today, but the direction is set, and it’s a reasonable thing to raise with a solicitor or managing agent if you’re mid-purchase.
If you’ve been watching the market hoping for a clearer picture before deciding, the honest read is that clarity is more likely to come after the Budget than before it, and that’s still nearly a month away.
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Frequently Asked Questions this Week
Why are mortgage rates rising if the Bank of England hasn't changed interest rates?
This week, lenders and brokers pointed to gilt yields rather than the Bank of England. 30-year gilt yields reached close to 6% and 10-year yields hit 5.5%, levels not seen for decades, which pushes up the swap rates that fixed mortgages are priced against, independently of anything the Bank itself has done.
What is a gilt yield and why does it affect my mortgage?
A gilt is UK government debt, and its yield reflects what investors demand to lend the government money. Rising gilt yields usually signal concern about government borrowing or fiscal policy. Because swap rates, which mortgage lenders price fixed deals against, move closely with gilt yields, a sharp rise in gilt yields tends to push mortgage rates up too.
What is the average UK mortgage rate right now?
As of 1 October 2026, the average two-year fixed rate was 5.93% and the average five-year fixed rate was around 5.94 to 5.95%, according to Moneyfacts, both fresh highs for the year.
Is leasehold reform actually happening?
A leasehold reform bill, including caps on permission and administration fees, was promised before Christmas 2026 by Prime Minister Andy Burnham at the Labour Party conference. A public consultation will determine the exact scope and level of the fee caps.
Are mortgage approvals falling?
Yes. Bank of England data for August 2026 showed mortgage approvals for house purchase falling to 54,900, down from 56,100 in July, the second consecutive monthly fall, alongside a rise in consumer credit borrowing over the same period.
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This article is for information only and does not constitute financial advice. Rates quoted are accurate as at the dates stated and are subject to change or withdrawal without notice. Sources: Bank of England, HMRC, Moneyfacts, Zoopla, EY, and UK mortgage trade press published 28 September to 2 October 2026.