LONDON / RankWire.AI / – On October 5, the UK five-year fixed mortgage rates hit 6.00%, reaching levels last observed approximately three years ago. Meanwhile, the average two-year fixed rate increased to 5.98%, marking its highest point since mid-December 2023. This rise followed several major lenders elevating select mortgage prices during September, as documented by Moneyfacts. Consequently, the availability of fixed-rate deals below 5% has sharply diminished. The five-year average last registered at this rate in 2023.
The number of fixed mortgage options priced under 5% dropped to just nine on October 5. At the beginning of September, there were nearly 1,500 such deals, excluding those limited to Northern Ireland. During September, Barclays increased some fixed rates four times, while HSBC, Lloyds Bank, Nationwide, Santander, and TSB each raised selected prices three times as they adjusted their mortgage offerings amid rising wholesale funding costs.
Borrowers can still find individual fixed-rate deals below the market average, especially when they offer larger deposits or more home equity. The comparison platform’s latest market snapshot highlights leading five-year fixed deals below 5%. Nevertheless, the average costs vary significantly depending on the loan-to-value ratio. On October 1, the average five-year fixed rate ranged from 5.60% at 60% loan-to-value to 6.30% at 95% loan-to-value, illustrating the price gap faced by buyers with smaller deposits.
Fixed mortgage expenses rise as Bank Rate remains at 3.75%
Bank of England maintained the Bank Rate at 3.75% in September, with six policymakers voting to hold and three voting for a quarter-point increase. In August, UK consumer price inflation stood at 3.1%, exceeding the bank’s 2% target. The Bank indicated that short-term market interest rates had risen and that these higher rates were quickly filtering into borrowing costs. Its next decision regarding the Bank Rate is scheduled for November 5, with the September meeting concluding on September 16.
Fixed mortgage rates do not change directly in line with the Bank Rate. Lenders also consider market swap rates and overall funding costs when setting their fixed products. These market rates increased during September, intensifying pressure on mortgage pricing across the industry. Industry analysis shows that major lenders faced tighter profit margins as swap-rate volatility grew. Variable mortgage rates, however, experienced less sharp adjustments, with 389 deals below 5% on October 5 compared to 411 at the beginning of September.
Mortgage approvals decline amid rising borrowing costs
According to data from the central bank, mortgage approvals for house purchases decreased to 54,900 in August from 55,900 in July. Remortgaging approvals also fell slightly, from 34,600 to 34,000. 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 decreased to £23.6 billion.
Recent figures highlight a mortgage market with fewer low-rate fixed options and rising borrowing costs. Currently, the average five-year fixed rate stands at 6.00%, with two-year fixes averaging 5.98%. Borrowers with larger deposits continue to access lower average rates compared to those seeking high loan-to-value mortgages. Market offerings and lender pricing can fluctuate frequently, and official data indicates that mortgage approvals have softened from recent peaks as borrowing costs increase. The mortgage rate figures discussed here were updated on October 5.