LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates climbed to 6.00%, marking a return to levels not seen in roughly three years. Meanwhile, the average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. According to Moneyfacts, this uptick followed several major lenders raising selected mortgage prices throughout September. As a consequence, the availability of fixed-rate deals below the 5% threshold has sharply diminished, with the five-year average last at this level in 2023.
The count of fixed mortgage products priced under 5% dropped to just nine by October 5. At the beginning of September, nearly 1,500 such deals existed, excluding those limited to Northern Ireland. During September, Barclays increased selected fixed rates on four separate occasions. Similarly, HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised their selected prices three times, reflecting lenders’ adjustments to mortgage ranges amid rising wholesale funding costs.
Despite this, borrowers can still find individual fixed deals below the market averages, especially when they have larger deposits or significant home equity. The latest market snapshot from a comparison service highlights leading five-year fixed deals under 5%. Nonetheless, the average pricing varies considerably depending on the loan-to-value ratio. As of October 1, average five-year fixed rates ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the wider price gap faced by buyers with smaller deposits.
Cost of fixed mortgages increases while Bank Rate remains at 3.75%
The Bank of England maintained its Bank Rate at 3.75% in September, with a vote split of six policymakers supporting the hold and three favoring a quarter-point hike. Consumer price inflation in the UK stood at 3.1% in August, exceeding the bank’s 2% target. The central bank stated that short-term market interest rates had risen, and that these higher rates were quickly transmitting into increased borrowing costs. The next scheduled decision on Bank Rate will be on November 5, following the conclusion of its September meeting on September 16.
However, fixed mortgage rates do not move solely in lockstep with Bank Rate, as lenders also factor in market swap rates and overall funding costs when setting their fixed-rate products. These market rates experienced an increase throughout September, exerting additional upward pressure on mortgage pricing sector-wide. Industry analysts found that larger lenders faced tighter profit margins as volatility in swap rates grew. Meanwhile, variable mortgage prices experienced less dramatic shifts, with 389 variable deals below 5% on October 5 compared to 411 at the beginning of September.
Mortgage approvals decline as borrowing costs rise
Recent data from the Bank of England shows that in August, there were 54,900 mortgage approvals for house purchases, slightly down from 55,900 in July. Approvals for remortgaging also fell to 34,000 from 34,600. Although net mortgage borrowing increased to £4.4 billion from £4.1 billion, it remained below the previous six-month average of £5.2 billion. The effective interest rate on newly drawn mortgages rose to 4.60% in August, up from 4.45% in July, while gross secured lending decreased to £23.6 billion.
These latest figures highlight a mortgage market with fewer low-rate fixed options and higher average borrowing costs. Currently, five-year fixed rates average 6.00%, with two-year fixes at 5.98%. Borrowers with larger deposits continue to benefit from lower average rates compared to those seeking high loan-to-value mortgages. Market conditions and lender pricing are subject to rapid change, and official data indicate that mortgage approvals have weakened from recent levels amid rising borrowing costs. The mortgage rate averages cited here were updated on October 5.