UK Mortgage Market Relies on Short-Term Fixed Rates

Ninety-five percent of mortgages issued by UK banks in March were fixed for five years or less. Only 410 of the 89,710 loans made that month carried fixed terms longer than five years, according to UK Finance. The average two-year fixed rate rose 0.91 percentage points to 5.75 percent. In the same period, longer-term US rates increased by 0.38 percentage points.

US households held fixed-rate mortgages in 2019, the Federal Reserve reported. Most of those loans are funded by investors rather than bank deposits and carry 15- or 30-year terms. These longer terms shield borrowers from short-term rate changes but limit mobility. Home sales in the US have not exceeded five million per month since July 2022, the National Association of Realtors said.

Lenders in those countries frequently obtain funding from insurers, pension funds or bond investors. In Australia, fewer than five percent of loans are fixed; most borrowers use variable rates tied to the Reserve Bank cash rate.

Mortgages offers 5- to 15-year fixed-rate products funded by an asset manager. Perenna provides a 15-year fixed rate backed by European-style bonds, and Kensington Mortgages, owned by Barclays, issues fixed terms between 11 and 40 years funded by the life insurer Rothesay.

Rachael Hunnisett of April Mortgages said most UK banks find longer-term fixed rates more expensive and riskier to fund than short-term products.