LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates climbed to 6.00%, reaching levels last observed about three years prior. The average two-year fixed rate increased to 5.98%, marking its highest point since mid-December 2023. This rise was documented by Moneyfacts following several major lenders increasing selected mortgage prices during September. Consequently, the availability of fixed-rate deals below the 5% threshold has significantly declined. The last time the five-year average was at this level was in 2023.
As of October 5, only nine fixed mortgage products were priced under 5%, a steep drop from nearly 1,500 such deals at the start of September, excluding products limited to Northern Ireland. During September, Barclays raised selected fixed rates on four occasions, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each increased their selected prices three times amidst adjustments to their mortgage ranges during a period of elevated wholesale funding costs.
While fixed deals below the current market averages remain available, they are more accessible primarily for borrowers with larger deposits or more home equity. The latest market snapshot from a comparison service highlighted leading five-year fixed deals below 5%. Nonetheless, average prices vary significantly depending on the loan-to-value ratio. On October 1, the average five-year fixed rates ranged from 5.60% at 60% loan-to-value to 6.30% at 95%, illustrating the increased cost faced by buyers with smaller deposits.
Fixed mortgage costs increase as Bank Rate remains steady at 3.75%
Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to keep it unchanged and three supporting a quarter-point hike. UK consumer price inflation stood at 3.1% in August, exceeding the central bank’s 2% target. The Bank stated that short-term market interest rates had risen and that higher rates were quickly transmitted to borrowing costs. The next Bank Rate decision is scheduled for November 5, following the conclusion of the September meeting on September 16.
Mortgage fixed rates do not move solely in line with the Bank Rate. Lenders also factor in market swap rates and broader funding expenses when setting fixed-rate products. During September, these market rates increased, exerting additional pressure on mortgage pricing sector-wide. Industry analysis indicated that major lenders experienced tighter pricing margins as swap-rate volatility intensified. Variable mortgage rates saw less sharp movement, with 389 deals below 5% on October 5, compared to 411 at the start of September.
Mortgage approvals decline amid rising borrowing costs
Central bank data revealed that 54,900 mortgage approvals for house purchases were granted in August, down from 55,900 in July. Remortgaging approvals decreased slightly to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the six-month average of £5.2 billion. The effective interest rate on new mortgages rose to 4.60% in August from 4.45% in July. Additionally, gross secured lending fell to £23.6 billion.
The latest figures reflect a mortgage market with fewer low-rate fixed products and higher average borrowing costs. Currently, five-year fixed rates average 6.00%, while two-year fixes average 5.98%. Borrowers with larger deposits still benefit from comparatively lower rates than those seeking high loan-to-value mortgages. As product availability and lender pricing can fluctuate frequently, official data indicates that mortgage approvals have weakened from recent levels amid rising borrowing costs. The mortgage averages mentioned here were updated on October 5.