LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates reached 6.00%, marking a return to levels not seen in approximately three years. The average two-year fixed rate increased to 5.98%, reaching its highest point since mid-December 2023. This rise was recorded by Moneyfacts following several major lenders raising select mortgage prices during September. Consequently, the availability of fixed deals below the 5% threshold has sharply declined. The last time the five-year average was at this level was in 2023.
As of October 5, the number of fixed mortgage options below 5% dropped to nine. At the beginning of September, nearly 1,500 such deals were available, excluding products limited to Northern Ireland. Throughout September, Barclays increased certain fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised their selected prices three times. These adjustments occurred as lenders responded to higher wholesale funding costs, resulting in changes across mortgage ranges.
Despite the overall trend, individual fixed-rate deals below the market average remain accessible, particularly for borrowers with larger deposits or more equity in their homes. The latest market snapshot from the comparison service highlights leading five-year fixed deals under 5%. Nonetheless, average prices vary significantly based on loan-to-value ratios. On October 1, five-year fixed rates averaged from 5.60% at 60% loan-to-value to 6.30% at 95%, illustrating the wider price gap faced by buyers with smaller deposits.
Costs for fixed mortgages increase as Bank Rate remains at 3.75%
The Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to hold and three supporting a quarter-point hike. Consumer price inflation in the UK was recorded 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 these higher rates were quickly being reflected in borrowing costs. Its next scheduled decision on the Bank Rate will be announced on November 5, following the end of the September meeting on September 16.
However, fixed mortgage rates are influenced by more than just the Bank Rate. Lenders also consider market swap rates and broader funding costs when setting fixed-rate products. These market rates increased during September, exerting additional pressure on mortgage pricing across the industry. Industry analysis indicated that larger lenders faced tighter margins as swap-rate volatility grew. Meanwhile, variable mortgage rates changed less dramatically, with 389 deals below 5% on October 5 compared to 411 at the beginning of September.
Mortgage approvals decline amid rising borrowing costs
Data from the central bank shows that 54,900 mortgage approvals for house purchases were granted in August, down from 55,900 in July. Approvals for remortgaging also decreased to 34,000 from 34,600. Despite an increase in net mortgage borrowing to £4.4 billion from £4.1 billion, the figure remains below the six-month average of £5.2 billion. The effective interest rate on new mortgages increased to 4.60% in August from 4.45% in July. Additionally, gross secured lending declined to £23.6 billion.
Recent data points to a mortgage market with fewer low-rate fixed options and rising borrowing costs. The current average for five-year fixed rates is 6.00%, with two-year fixes at 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those with high loan-to-value mortgages. The availability of products and lender pricing can fluctuate frequently, and official figures reveal that mortgage approvals have weakened from recent highs as borrowing costs have increased. The averages mentioned here were updated on October 5.